By Chris Matthews and Barbara Kollmeyer, MarketWatch
All eyes are on the Federal Reserve
U.S. stocks rose modestly at the start of trade Wednesday, as
investors await the outcome of a key policy announcement from the
Federal Reserve, due at 2 p.m. Eastern.
How are the benchmarks faring?
The Dow Jones Industrial Average rose 68 points, or 0.3%, to
23,748, while the S&P 500 index rose 7 points, or 0.3%, to
2,553. The Nasdaq Composite Index climbed 14 points, or 0.2%, to
6,978.
What's driving the market?
Investors are expecting the Federal Reserve to help calm in some
way what has been a tumultuous atmosphere for markets in recent
weeks as the central bank's interest-rate setting committee, the
FOMC, concludes its final two-day meeting of the year Wednesday,
with an announcement on whether it will raise interest rates due at
2 p.m.
CME Group data
(https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html),
gauging Federal-funds futures, indicate an 66.3% likelihood that
the Fed will raise rates 0.25% Wednesday, as prominent voices,
including the Wall Street Journal's editorial page
(https://www.wsj.com/articles/time-for-a-fed-pause-11545092108),
called for the Fed to pause amid signs of slowing economic
growth.
But if the Fed does hike, investors hope the central bank will
make dovish noises on future policy intentions. Investors will be
watching closely for the Fed's statement that accompanies the
interest-rate decision, as well as a news conference at 2:30 p.m.,
at which Federal Reserve Chair Jerome Powell will discuss future
interest rate increases.
Meanwhile, U.S. Treasury Secretary Steven Mnuchin gave investors
reason for optimism regarding U.S.-China trade relations, when he
said the U.S. and China will meet in January to broker a trade-war
truce, in an interview with Bloomberg News on Tuesday. Previously,
the Trump Administration hadn't given a specific timetable for
face-to-face negotiations.
The interview helped power technology stocks higher in
late-Tuesday trade, but the ability of policy makers to instill
lasting investor confidence with reassuring words, but not concrete
policy changes, has been waning in the weeks since President Donald
Trump and Chinese President Xi Jinping last met on the sidelines of
a recent G-20 summit.
(https://www.bloomberg.com/news/articles/2018-12-18/mnuchin-says-china-and-u-s-planning-for-trade-talks-in-january)
(https://www.bloomberg.com/news/articles/2018-12-18/mnuchin-says-china-and-u-s-planning-for-trade-talks-in-january)Mnuchin
also said he blamed market volatility on the effect of the
financial-crisis-era Volcker rule and high-frequency trading, which
he said combined to sap liquidity in the market
(http://www.marketwatch.com/story/mnuchin-has-a-simple-reason-why-the-dow-is-poised-for-its-worst-december-since-1931-2018-12-18).
What are the strategist saying?
"Every bull market ends with a Fed policy mistake--it's just the
way it is. Evidence is mounting that we may be on the cusp of that
policy mistake, as it appears the Fed has overestimated the
strength of the economy amidst several headwinds," Tom Essaye,
president of the Sevens Report wrote in a Wednesday note to
clients.
"To be clear, current economic data remains, generally, solid.
But the marginal direction of change has turned decidedly lower,"
he wrote.
He went on to argue that the major unknown variable is whether
or not the Fed will stick to its policy of gauging the economy
using hard, but backward-looking, data on economic and job growth,
or will "recognize that, over the past few months, a serious
economic headwind has kicked up." Those barriers are evidenced by
slowing growth abroad, declining inflation expectations and oil
prices that have fallen more than 30% over the past three
months.
Essaye places a 70% probability that the Fed will raise rates
Wednesday, but that the decision will be accompanied by dovish
changes to the policy statement and predictions of the future path
of interest rates.
What stocks are in focus?
Shares of FedEx Corp.(FDX) are falling 8.1% Wednesday, after the
logistics company announced Tuesday evening
(http://www.marketwatch.com/story/fedex-slashes-profit-targets-will-offer-buyouts-2018-12-18)
that it was lowering its guidance for 2019 and that it was starting
a voluntary buyout program for some U.S. workers.
Facebook Inc. (FB) stock is in focus after the New York Times
reported
(https://www.nytimes.com/2018/12/18/technology/facebook-privacy.html?action=click&module=Top%20Stories&pgtype=Homepage)
that the company shared user data with large tech companies to a
greater degree than it had previously disclosed. The stock is down
1% in Wednesday-morning trade.
Pfizer Inc. (PFE) shares are rising 0.8%, after the firm
announced a plan to combine its consumer health unit with that of
GlaxoSmithKline Plc,(GSK.LN) with Pfizer taking a minority stake in
the new enterprise.
Shares of Micron Technology Inc. (MU) are falling more than 6%
early Wednesday, after the chip maker lowered its fiscal
second-quarter outlook Tuesday evening.
General Mills Inc. (GIS) shares are rising nearly 10%, after the
consumer foods company reported an earnings beat
(http://www.marketwatch.com/story/general-mills-stocks-jumps-after-profit-beat-but-sales-comes-up-shy-2018-12-19)
earlier in the morning.
Shares of Medtronic Plc(MDT) are up 0.6% early Wednesday, after
the firm announced the completion of a $1.7 billion deal to acquire
Mazor Robotics.
Eli Lilly and Co. (LLY) stock is up 3.3%, after the
pharmaceutical company issued optimistic 2019 guidance
(http://www.marketwatch.com/story/eli-lillys-stock-gains-after-upbeat-profit-and-revenue-outlook-raised-dividend-2018-12-19)
and raise its dividend by 15%.
What data are in focus?
Other than the Fed decision due at 2 p.m. Eastern Time,
investors are also looking forward to the National Association of
Realtors estimate for existing home sales in the month of November,
to be released at 10 a.m.
The Commerce Department reported that the U.S. trade deficit
increased to $124.8 billion in the third quarter, up from $101.2
billion the second quarter of 2019.
How did the benchmarks trade yesterday?
During a volatile day of trade Tuesday, the Dow Jones Industrial
Average finished up 0.4% to 23,675.64, while the S&P 500 index
rose less than a point to close at 2,546.16. The Nasdaq Composite
Index climbed 0.5% to 6,783.91.
How are other markets trading?
Optimism didn't exactly extend to Asian markets
(http://www.marketwatch.com/story/asian-markets-mixed-ahead-of-fed-rate-decision-2018-12-18),
which were a mixed bag with Japan's Nikkei shedding 1% and China's
Shanghai Composite Index off 0.4%.
In Europe, stocks are mostly higher, with both the Stoxx Europe
600 and FTSE 100 advancing on the day.
Crude-oil prices
(https://www.bloomberg.com/news/articles/2018-12-18/even-stan-druckenmiller-doesn-t-know-where-markets-go-next?srnd=premium-europe)
were modestly higher, while the ICE Dollar Index edged lower and
(http://www.marketwatch.com/story/asian-markets-fall-ahead-of-xi-speech-fed-meeting-2018-12-17)
(https://www.bloomberg.com/news/articles/2018-12-18/even-stan-druckenmiller-doesn-t-know-where-markets-go-next?srnd=premium-europe)
(https://www.bloomberg.com/news/articles/2018-12-18/even-stan-druckenmiller-doesn-t-know-where-markets-go-next?srnd=premium-europe)
(https://www.bloomberg.com/news/articles/2018-12-18/even-stan-druckenmiller-doesn-t-know-where-markets-go-next?srnd=premium-europe)gold
futures ticked higher.
(END) Dow Jones Newswires
December 19, 2018 09:58 ET (14:58 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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