U.S. stocks finished the regular trading session mixed after a solid morning advance, which developed on the heels of strong global equity gains, tapered in afternoon action as the Fed concluded its monetary policy meeting. Treasury yields diverged as the Central Bank held its target range steady, as widely expected, while the U.S. dollar and gold were modestly higher and crude oil prices reversed to the downside despite a bullish inventory report. In equity news, corporate earnings reports continued to roll out, with Estee Lauder rallying after topping consensus forecasts.

The Dow Jones Industrial Average (DJIA) rose 58 points (0.3%) to 23,435, and the S&P 500 Index ticked 4 points (0.2%) higher to 2,579, while the Nasdaq Composite decreased 11 points (0.2%) to 6,717. In moderate volume, 873 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.08 to $54.30 per barrel and wholesale gasoline gained $0.01 to $1.74 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.81 to $1,275.26 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 94.78.

The Federal Open Market Committee (FOMC) concluded its monetary policy meeting, unanimously agreeing to keep the target range for its fed funds rate steady at 1.00%-1.25%. The FOMC, based on information received since it met in September, stated that “the labor market has continued to strengthen and that the economy has been rising at a solid rate despite hurricane-related disruptions.” Separately, the Fed noted that the balance sheet normalization program initiated in October is proceeding. At its previous meeting in September, the Fed provided details of its plan to begin winding down its $4.5 trillion balance sheet. In a unanimous decision, the Central Bank said it will taper its balance sheet by $10 billion per month—$6 billion from Treasuries and $4 billion from mortgage-backed securities—increasing by $10 billion per month every quarter for the first year. No updated economic projections or post-meeting press conference by Chairwoman Janet Yellen were provided after the decision.

The Institute for Supply Management (ISM) Manufacturing Index for October unexpectedly declined to 58.7 from 60.8 in September, compared to the Bloomberg forecast calling for a dip to 59.7. A reading above 50 denotes expansion. ISM said comments from respondents continued to reflect strong incoming orders as a result of recovery efforts in the wake of the hurricanes. New orders remained solid at 63.4, while the employment and prices components shrunk slightly, but remained positive with readings of 59.8 and 68.5, respectively.

The final Markit U.S. Manufacturing PMI Index was revised to 54.6 for October from the preliminary reading of 54.5, where it was expected to remain, and above the 53.1 level posted in September. A reading above 50 denotes expansion. The release is independent and differs from ISM’s manufacturing report, as it has less historic value and Markit weights its index components differently.

The ADP Employment Change Report showed private sector payrolls rose by 235,000 jobs in October, above the Bloomberg forecast of 196,000, while September’s increase of 135,000 jobs was revised to a gain of 110,000. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader October nonfarm payroll report, expected to show jobs grew by 325,000 and private sector payrolls rose by 320,000 (economic calendar). The unemployment rate is forecasted to remain at 4.2% and average hourly earnings are projected to rise 0.2% month-over-month (m/m).

The MBA Mortgage Application Index fell 2.6% last week, following the prior week’s 4.6% decline. The drop came as a 5.0% decrease in the Refinance Index was met with a 1.0% fall in the Purchase Index. The average 30-year mortgage rate rose 4 basis points (bps) to 4.22%.

Construction spending rose 0.3% m/m in September, versus projections of a 0.2% decline, and following July’s downwardly revised 0.1% increase. Residential spending was flat, while non-residential spending rose 0.5%.

Treasuries finished mixed, with the yield on the 2-year note rising 1 basis point to 1.61%, while the yield on the 10-year note dipped 1 basis point to 2.37%, and the 30-year bond rate was 3 bps lower at 2.85%.

Tomorrow’s economic calendar will be fairly light and include weekly initial jobless claims, forecasted to tick higher to a level of 235,000 from the prior week’s 233,000, as well as preliminary Q3 productivity and labor costs, with productivity expected to increase 2.6% and labor costs forecasted to have moved 0.4% higher.

Schwab Center for Financial Research – Market Analysis Group

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