Closing Market Summary: Stocks Notch Record Highs as Fed Trims Asset Purchases Equities settled on their highs after dovish forward guidance from the Federal Reserve offset the immediate impact of a tapering announcement. Although the Federal Open Market Committee reduced the size of its monthly asset purchases from $85 billion to $75 billion, it pledged to keep the target Fed Funds Rate near its current levels ‘well past the time that the unemployment rate declines below 6.5%.'
The dovish guidance was also the likely reason for Treasuries retracing all of their post-announcement losses. The benchmark 10-yr yield ended with a five basis point gain at 2.89%, which is essentially where it traded before the afternoon announcement.
During his press conference, Chairman Bernanke elaborated on the decision, saying the Committee plans to introduce further gradual reductions should economic data continue showing measurable improvement.
The S&P 500 surged 1.7%, wiping out its entire December loss. The index ended at a fresh record closing high as nine of ten sectors added at least 1.0%.
Heavily-weighted financials (+2.4%) and health care (+2.4%) finished in the lead. The health care sector received a considerable boost from biotechnology as the iShares Nasdaq Biotechnology ETF (IBB 219.31, +5.92) rose 2.8%.
Despite the relative strength of the two top-weighted sectors, the S&P 500 was kept from registering additional gains by the underperformance of technology (+0.8%). The sector lagged throughout the session as its top component, Apple (AAPL 550.77, -4.22), weighed. The largest tech stock fell 0.8% in the wake of Jabil Circuit's (JBL 15.67, -4.05) disappointing earnings report. Comments from China Mobile (CHL 52.61, +0.81) also weighed as the company said it is still working on an Apple iPhone deal after last week's reports implied the deal was nearing completion.
Today's broad gains overshadowed another key laggard, Ford (F 15.65, -1.05). The stock lost 6.3% after issuing fiscal-year 2014 guidance that fell short of expectations. Specifically, the company said it expects FY14 auto revenue to be about equal with FY13 (the current consensus calls for 11% growth) while adding its global auto operating margin target of 8-9% is at risk. The guidance update pressured rival General Motors (GM 41.27, -0.26) which slid 0.6%.
The removal of the uncertainty associated with today's FOMC decision caused the CBOE Volatility Index (VIX 13.80, -2.41) to slump to last week's levels.
Today's economic data focused on housing. The weekly MBA Mortgage Index fell 5.5% to follow last week's 1.0% increase.
November building permits rose to 1,007,000 from the prior month's upwardly revised rate of 1,039,000 (from 1,034,000). That was above the pace of 983,000 that had been expected among economists polled..
Regarding Housing Starts, September starts came in at 873,000 while the consensus expected a reading of 915,000. For October, Housing Starts were reported at 889,000 against the 920,000 expected by the consensus. Lastly, November starts increased to 1,091,000 while a reading of 950,000 was broadly anticipated.
Tomorrow, weekly initial claims will be reported at 8:30 ET while Existing Home Sales for November will be reported at 10:00 ET. In addition, November Leading Indicators and the December Philadelphia Fed Survey will also be released at 10:00 ET.
o Nasdaq +34.8% YTD o Russell 2000 +33.5% YTD o S&P 500 +27.0% YTD o DJIA +23.4% YTD