Investment Commentary –September 21st, 2016
Market Indices as of Market Close September 21st, 2016
Dow 18,293 (4.99% YTD)
S&P 2,163 (5.83% YTD)
NASDAQ 5,295 (5.75% YTD)
Global DOW 2,451 (2,033 week low/high 2,489)
10-year Treasury 1.54 (1.32 52 week low /2.38 high)
Gold 1,337 ($1,053 52 week low /high $1,384)
Oil $45.59 ($33.28 52 week low /high $54.34)
Stocks rip higher to log sharp gains after Fed stands pat on rates
U.S. stocks on Wednesday surged into the close, finishing near the highs of the day, following the Federal Reserve’s decision not to increase benchmark interest rates from ultralow levels. The policy-setting Federal Open Market Committee, in its updated policy statement said the central bank was seeking further evidence of sustained economic strength. A rally in crude-oil prices CLX6, +3.41% also helped the broader market extend gains. The Dow Jones Industrial Average jumped 163 points, or 0.9%, to close at 18,293, the S&P 500 index SPX, +1.09% finished up 23 points, or 1.1%, at 2,163. Meanwhile, the Nasdaq Composite Index ended up 48 points, or 1.1%, at 5,295. The Fed’s decision to keep rates lower weighed on the dollar, with the U.S. ICE Dollar Index DXY, -0.49% falling 0.5% at 95.5470. Earlier in the session, equity markets were heartened by additional, radical steps by the Bank of Japan to deliver a jolt to its flagging economy by maintaining the yield of 10-year Japanese bonds TMBMKJPY-10Y at zero. Lower rates have been supportive of stocks climbing, keeping keeping borrowing costs down.
Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely
A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end.
“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength. Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 — a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election.
“The statement is much more hawkish than I thought it would be,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.”
The JP Morgan WEEKLY BRIEF
After the Brexit vote the UK purchasing managers survey for the dominant service sector fell off a cliff, which historically would have been consistent with the U.K. experiencing a recession in the coming months. The latest result shows a rebound suggesting that the immediate economic damage may not be as bad as looked likely straight after the vote. But businesses still have no idea what the UK’s future trading arrangements with its largest trading partner are going to look like. If restricting freedom of movement is the government’s priority then it is unlikely that the UK will continue to enjoy free trade in financial services. If large numbers of jobs therefore have to move to Europe the UK’s current economic resilience may prove to be the calm before the storm.
THIS DAY IN FINANCIAL HISTORY: September 21st, 1931
British Actions Close American Banks
On this day in 1931 Great Britain abandons the gold standard for its currency. Americans fearing their country would follow suit immediately started to pull their money from banks across the country. They feared that not having gold backing their money’s value would leave them broke. The resulting withdrawals caused 827 banks to shut down. It took another two years for the United States to abandon the gold standard.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.