U.S. stock markets closed mixed on Wednesday as investors were weighing the prospect of a new fiscal stimulus this year. Market participants also remained skeptical regarding weak economic data. However, the Fed confirms pursuing its ultra-dovish monetary stances as long economic conditions remain volatile.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.2% to close at 30,154.54. Notably, 9 components of the 30-stock index ended in the green while 20 in red and 1 remained unchanged. Major loser of the blue-chip index was Walgreens Boots Alliance, Inc. (WBA – Free Report) . The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, the Nasdaq Composite finished at 12,658.19, gaining 0.5% due to strong performance by large-cap stocks. The teach-heavy index recorded an all-time high close and an all-time intraday high at 12,687.32.
Meanwhile, the S&P 500 rose 0.2% to end at 3,701.17. Both the Technology Select Sector SPDR (XLK) and the Consumer Discretionary Select Sector SPDR (XLY) gained 0.7% while the Industrials Select Sector SPDR (XLI) lost 0.6%. Notably, five out of eleven sectors of the benchmark index closed in the green and six in red.
The fear-gauge CBOE Volatility Index (VIX) was down 1.7% to 22.50. A total of 9.9 billion shares were traded on Wednesday, lower than the last 20-session average of 11.4 billion. Decliners outnumbered advancers on the NYSE by a 1.01-to-1 ratio. On Nasdaq, a 1.08-to-1 ratio favored declining issues.
Expectations for a Fresh Fiscal Stimulus
Four top-level lawmakers met on Dec 15 to reach a deal in order to inject a new coronavirus-aid package in the economy. House Speaker Nancy Pelosi will meet with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer and House Minority Leader Kevin McCarthy.
Meanwhile, a proposed $908 billion bipartisan stimulus bill is likely to be separated in two different parts. The first part will consist of $748 billion and will include those items for which a Congressional agreement has already reached. This will include $300 billion for small business support, including restaurants and entertainment venues. Provisions to expand $300 per week unemployment insurance set to expire on Dec 26 for 16 weeks.
The bill will extend an eviction moratorium through Jan. 31 providing $25 billion into rental assistance. A provision of $6 billion into vaccine development distribution and another $10 billion into testing and contact tracing. The bill will provide $82 billion into education funding and extend federal student loan forbearance through April 1. Moreover, a provision of $45 billion to the transportation sector and $10 billion into broadband access will be in the bill.
The second part of the bill consisting $160 billion will include local and state government aid and business protection assistance. This part of the bill will be considered later due to differences of opinion between lawmakers.
Fed to Pursue Ultra-Dovish Monetary Stances
After the completion of its two-day FOMC meeting, Fed chairman Jerome Powell said that the central bank will continue to buy at least $120 billion of bonds ($80 billion of Treasury bonds and $40 billion of agency mortgage-backed securities) per month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” The benchmark interest rate will stay as low as 0%-0.25% for a long period since inflationary pressure is likely to remain muted owing to weak demand.
The Fed forecasted that the GDP in 2020 to fall 2.4%, an improvement of its September’s projection of a decline of 3.7%. The GDP in 2021 to rise 4.2%, an improvement of its September’s projection of 4%. Unemployment rate for 2020 was estimated to stay at 6.7%, an improvement of its September’s projection of 7.6%. Unemployment rate for 2021 was forecasted to stay at 5%, an improvement of its September’s projection of 5.5%.
The Department of Commerce reported that retail sales in November dropped 1.1%, its largest decline in seven months. The consensus estimate was for a decline of 0.3%. October’s data was revised downward to a decline of 0.1% from a gain of 0.3%.
The core retail sales (excluding automobiles, gasoline, building materials and food services) fell 0.9%. The consensus estimate was for a gain of 0.1%. October’s data was revised downward to a decline of 0.1% from a gain of 0.2%. Notably, core retail sales correspond most closely with the consumer spending component of the GDP.
IHS Markit reported its “flash” survey of the U.S. service sector fell to 55.3 in December from 58.4 in November. A similar survey of manufacturing industries inched down to 56.5 in December from 56.7 in November.
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