Another Record Day for Equities

Another Record Day for Equities

US stocks fell slightly after setting new records Tuesday as traders found few surprises in the minutes of the last Fed meeting. The dollar also fell from recent highs, while crude oil gave up much of Tuesday's gains. 

The S&P 500 had it's ninth up day in the ten sessions on Tuesday, climbing 0.6 percent to a record 2,365.28. The Dow Jones Industrial Average, the Nasdaq Composite Index and the Russell 2000 Index also set new record highs. On Wednesday, the markets fell off slightly amid profit-taking and few surprises from the just-released Fed minutes. 

Retailers Wal-Mart and Home Depot reported positive earnings. Home Depot added 1.3 percent and Wal-Mart rose 3 percent. Real estate and utility shares were the biggest gainers as traders anticipate positive housing market numbers for the start of the year. 

In Europe, the Stoxx 600 index made a third straight gain to a new 2017 high after positive euro-area manufacturing results. Banking stocks dropped 1 percent after HSBC missed earnings estimates and announced cost-cutting measures, which may include layoffs. 

Treasury yields rose as traders looked ahead to the release of the minutes from the most recent meeting of the FOMC. As they did in December, members discussed larger issues of economic policy. However, this was the first meeting since the inauguration of a new president and was expected to give investors some idea of how Fed members see the announced fiscal policy changes. As it turned out, the minutes showed little new thinking, with Fed officials only saying they would raise rates "fairly soon" and were not worried about inflation.

Since many of those fiscal policy changes have not been announced in concrete terms yet, the Fed's decisions about monetary policy had little to react to. At this point, the Fed is still expected to make the three interest rate increases it signaled would be likely this year. One voting member, Philadelphia Fed President Patrick Harker, said that a rate hike in March is not "off the table at this point." This seems in line with comments made before Congress last week by Fed Chair Janet Yellen. 

Citigroup's energy analysts reported a strong short-term price outlook in crude oil, citing growing demand from Asian countries and lower output by OPEC countries. It appears to have settled concerns about whether all OPEC countries would comply with the agreement to cut production. WTI crude oil gained 1.2 percent to settle at $54.09 a barrel. 

The US dollar rose against the euro, reflecting continued confidence that the Fed will take action to boost inflation. The momentum in the US currency, like the continued stock rally, appears to be fueled by forces other than reactions to specific fiscal policy moves. This early in the new administration, the new President has made more headlines on immigration and other issues. As we get closer to summer, both Congress and the White House will get specific about budgetary plans and specific numbers, which should give investors new information to consider. For now, however, the buying enthusiasm has yet to run out. 

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