US stocks advanced today, setting new intraday records for the Dow Jones Industrial Average and the S&P 500 Index, with investors cheering the Fed’s continuing pledge to maintain accommodatiive policy for a significant duration.
By Peter Martin
Thursday, September 18, 2014
By early afternoon in New York, the Dow Jones Industrial Average had gained 0.50% or 85 points to stand at 17,242, after earlier setting a new all-time high of 17,255.01, while the S&P 500 Index rose 0.39% to 2009.3, after hitting 2011.79, also an all-time high.
The rise in share prices comes amidst an encouraging combination of economic circumstances: inflation persists at desirable levels, the labor market continues on an upward trend, while the Fed remains committed to supporting employment by keeping the federal funds rate at its current historically-low level for an extended period.
Yesterday, after the end of September’s two-day FOMC meeting, the Fed announced another $10 billion reduction in the size of its monthly asset purchases and, beginning in October, the central bank will add $5 billion per month to its holdings of mortgage-backed securities (currently $10 billion) and $10 billion per month of Treasuries (currently $15 billon). Furthermore, the Fed said in its statement that if incoming information broadly supports the FOMC’s expectations for the labor market and inflation, it will end its stimulus program at its next meeting. Perhaps most significant in the statement , though, was the retention of the wording to maintain the current target range for the federal funds rate ‘for a considerable time’ provided inflation behaves itself.
Jobless claims data released today showed initial claims improving to 280,000 last week, a drop of 36,000 from the week prior, and coming in much better than expected. The week in question is the Bureau of Labor Statistics’ sample week for its employment situation report for September and the positive nature of the data will provide encouragement for a strong showing in that official monthly report. The drop in jobless claims takes the four-week moving average below 300,000, which is one of the lowest levels we have seen post-recession.
The encouraging nature of the labor data was offset to some degree by a disappointing result for housing starts. The annualized pace of construction starts on residential buildings fell in August to 956,000, down from the 1,117,000 seen in July, a drop of 14.4%. This suggests some negative implications for third-quarter GDP, but how much is unclear owing to a lot of volatility in this indicator in recent months.
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