Markets notched up record highs following release of the Federal Open Market Committee minutes on Wednesday. The minutes clearly indicated a rate hike in December. Moreover, the minutes stated that a majority of the Fed officials voted in favor of the rate hike. Meanwhile, the Dow posted an all-time record close, supported by a rally in shares of Johnson and Johnson and McDonald’s.
The Dow Jones Industrial Average (DJIA) closed at 22,872.89, gaining 0.2%. The S&P 500 Index (INX) increased 0.2% to close at 2,555.24. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 6,603.55, increasing 0.3%. Advancing issues outnumbered decliners on the NYSE by 1,439 to 1,213. On the Nasdaq, advancers outnumbered decliners by 1,414 to 1,228. The CBOE VIX decreased 0.9% to close at 9.99.
Benchmarks Finished at Record Highs
The Dow gathered 42.21 points on Wednesday to notch up an all-time record close. Such gains were buoyed by a rally in shares of Johnson & Johnson JNJ and McDonald’s Corp. MCD, which gained 2.8% and 2.6%, respectively. The blue-chip index has advanced 16% so far this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 amassed almost 5 points to hit a record close. Of the 11 major sectors of the S&P 500, nine ended in gains with real estate and utilities leading the advancers. The Real Estate Select Sector SPDR (XLRE) and the Utilities Select Sector SPDR ETF (XLU) advanced 0.6% and 0.4%, respectively.
Fed Minutes Confirm Rate Hike in December
Minutes of the Federal Open Market Committee (FOMC), released Wednesday confirmed a rate hike in December, the third instance in 2017. Though, the Federal Reserve officials remained largely divided over raising interest rates, majority of the bankers vouched in favor of raising rates. The ones debating against increasing rates reasoned that hiking rates at a time when inflation is lower than the target of 2% — an indication of a healthy economy — might cause major setbacks to the U.S. economy.
Such persistent disagreements among the Fed officials make it difficult for the investors to understand how the future of rate hikes would unfold. Meanwhile, a majority of the policymakers opined that the impact which hurricanes Harvey and Irma had on the U.S. economy would likely fade in a short time. Further, they also commented that inflation would soon hit the target rate of 2%.
After the meeting ended, the Fed chose to leave the interest rates unchanged in the range of 1% - 1.25% and decided to start unwinding its $4.5 trillion balance sheet. The much anticipated unwinding of the humungous balance sheet of the Fed was announced at the Federal Reserve Open Market Committee last month. The Fed is slated to begin the gradual unwinding process this month and plans to trim assets by $10 billion each month.
However, the Fed panel announced one rate hike before 2017 ends and three further hikes in 2018. Experts therefore speculate that this would come in December when Fed meets for the final time before the year ends. Moreover, in a recent speech at Cleveland, Fed Chairwoman Janet Yellen cautioned against raising interest rates gradually. She reasoned that this might lead to overheating of the economy and also financial instability. Such claims by Yellen were seconded by Kansas City Fed President Esther George who said that waiting for the inflation rates to hit the 2% level could rather turn out to be a ‘mistake.’
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