Fed Stays Unchanged, while Stocks End Mixed…..

U.S. stocks closed mixed, after the Fed left its monetary policy stance largely unchanged. Much of the talk prior to today’s announcement focused on potential changes to the Fed’s asset purchase program, however in the end no major shifts were made beyond some enhanced guidance language. Meanwhile, renewed hope for the long-awaited fiscal relief package, as well as COVID-19 vaccine optimism provided an encouraging backdrop for stocks, but mixed economic data kept much of the enthusiasm in check. A read on domestic retail sales fell for a second straight month, but was countered by a handful of favorable manufacturing reports out of Australia, Japan, the Eurozone, the U.S. and the U.K. Quest Diagnostics offered a mixed outlook and Stanley Black & Decker boosted its Q4 organic growth forecast, while Aphria and Tilray announced a combination to create the world’s largest global cannabis company. Treasuries dipped, as yields rose, while the U.S. dollar extended its drop to more than a 30-month low. Gold increased and crude oil prices were higher. Asia and Europe closed mostly higher.

The Dow Jones Industrial Average lost 45 points (0.2%) to 30,155, the S&P 500 Index gained 7 points (0.2%) at 3,701, and the Nasdaq Composite advanced 63 points (0.5%) to 12,658. In heavy volume, 953 million shares were traded on the NYSE and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil was $0.20 higher at $47.82 per barrel and wholesale gasoline added $0.02 to $1.35 per gallon. Elsewhere, the Bloomberg gold spot price rose $11.25 to $1,864.89 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.2% to 90.28.

Treasuries dipped amid mixed data and an unchanged Fed policy…..

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting today, opting to leave its stance and interest rates unchanged, as was widely anticipated. In its statement, the Committee again said that while the recovery from the disruption of the COVID-19 pandemic is continuing at a moderate pace, “The path of the economy will depend significantly on the course of the virus,” adding that, economic activity and employment “have continued to recover but remain well below their levels at the beginning of the year.” As well, the FOMC indicated that the ongoing public health crisis “will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term” and that accommodative policy will remain in place until inflation reaches or exceeds its 2% target and the unemployment rate falls to a level deemed sustainable without leading to higher inflation.

One of the more closely watched aspects of the FOMC decision, was the focus on the asset purchase program, of which the FOMC opted to leave the composition unchanged. However, the Federal Reserve did provide updated forward guidance language, saying it will continue its bond buying program at the current rate of $80 billion in Treasuries and $40 billion in mortgage-backed securities per month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

In his scheduled press conference following the statement, Chairman Jerome Powell said the Fed is committed to achieving its dual mandate of price stability and full employment, and that it maintains the flexibility to provide further accommodation. Powell also continued to reiterate the need for some sort of fiscal aid, noting that it is up to Congress to act.

Advance retail sales for November fell 1.1% month-over-month (m/m), well below the Bloomberg forecast of a 0.3% decrease and following October’s negatively-adjusted 0.1% decline from a previously-reported 0.3% gain. Last month’s sales ex-autos dropped 0.9% m/m, compared to expectations of a 0.1% rise and October’s figure was downwardly revised to a 0.1% decline from a 0.2% increase. Sales ex-autos and gas were off 0.8% m/m, compared to estimates of a 0.1% increase, and October’s reading was adjusted lower to a 0.1% dip from a 0.2% gain. The control group, a figure used to calculate GDP, decreased 0.5% m/m, versus projections of a 0.2% increase and October’s negatively-adjusted 0.1% decline from a 0.1% rise.

The preliminary Markit U.S. Manufacturing PMI Index for December declined by a smaller amount than expected to 56.5 from November’s unrevised 56.7 figure but remaining solidly in expansion territory denoted by a reading above 50. Estimates called for the index to decrease to 55.8. However, the preliminary Markit U.S. Services PMI Index showed output for the key U.S. sector slowed by a larger amount than anticipated, declining to 55.3 from November’s 58.4 figure, and compared to forecasts of a decrease to 55.9, but a reading above 50 also denotes expansion.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in December declined more than expected to 86 versus forecasts calling for a decline to 88 from November’s record high of 90. A level north of 50 depicts positive conditions. The NAHB said builder confidence fell back from historic levels in December, as housing remains a bright spot for a recovering economy, but adding that the issues that have limited housing supply in recent years, including land and material availability and a persistent skilled labor shortage, will continue to place upward pressure on construction costs. “As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes,” the report noted.

In other housing news, the MBA Mortgage Application Index rose by 1.1% last week, following the prior week’s 1.2% drop. The increase came as a 1.4% rise in the Refinance Index was met with a 1.8% gain in the Purchase Index. The average 30-year mortgage rate declined 5 basis points (bps) to 2.85%.

Business inventories rose 0.7% m/m in October, versus forecasts calling for a 0.6% increase, and compared to September’s upwardly-revised 0.8% gain.

Treasuries dipped, as the yield on the 2-year note was little changed at 0.12%, while the yields on the 10-year note and 30-year bond ticked 2 bps higher to 0.92% and 1.67%, respectively.

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