U.S. Stocks Maintain Record Gains After Fed Minutes as Volatility Drops Near Historic Lows

Wall Street held on to gains Wednesday, with the major indexes closing at record highs after the minutes of last month’s Federal Reserve meeting revealed continued support for gradual rate hikes.

Stocks Trade in Record Territory

U.S. stocks extended their new year gains on Wednesday, with all three major benchmarks finishing at new highs. The large-cap S&P 500 Index added 0.6% to finish at 2,713.06, with seven of 11 sectors contributing positively to the result.

Technology shares were among the best performers, rising 1.1% as a sector. The S&P 500’s energy index rallied 1.5%, paring its year-over-year decline to only 2.1%. Healthcare, materials and financials also posted steady gains.

On the opposite side of the spectrum, telecommunication services plunged more than 2%. Utilities were also down 0.8%.

The Nasdaq Composite Index rose 0.8% to 7,065.53 for its second consecutive record close. The Dow Jones Industrial Average climbed 98.67 points, or 0.4%, to 24,922.68.

A gauge of 30-day volatility known as the CBOE VIX plunged on Wednesday and briefly traded near historic lows, signaling renewed momentum for stocks. The VIX fell 6.4% to 9.15 on a scale of 1-100 where 20 represents the historic mean. Wall Street’s “fear index” traded as low as 8.94 earlier in the day. Volatility has now declined sharply in back-to-back sessions.

Fed Minutes

Central bank officials in December debated the impact of new tax cuts on monetary policy, with most agreeing that gradual interest rate increases would be warranted in 2018. Officials also expressed greater confidence in the performance of the labor market and economy before agreeing to raise interest rates for the third time since March. In reaching their decision, Fed officials raised their outlook on GDP, citing tax reform as a major catalyst.

“Most participants indicated that prospective changes in federal tax policy were a factor that led them to boost their projections of real GDP growth over the next couple of years,” the minutes of the Dec. 12-13 Federal Open Market Committee (FOMC) meeting revealed Wednesday.

Since the meeting, both houses of Congress approved new tax legislation, which President Donald Trump signed into law on Dec. 22.

The federal funds rate, which now sits at 1.5%, is expected to rise three more times this year, based on the central bank’s December forecast. The FOMC’s next policy meeting is scheduled for Jan. 30-31, and will be the last headed by Janet Yellen before Jerome Powell takes over as Chairman.

U.S. Factories Humming Along

U.S. manufacturing activity accelerated in December to round out the best year since 2004, adding further evidence of a robust national recovery under President Trump. The Institute for Supply Management’s factory gauge climbed to 59.7 in December from 58.2 a month earlier.

Sixteen of 18 industries reported growth last month, with machinery and computer products leading. ISM’s employment index remained strong at 57 despite falling 2.7 points from the previous month.

Investors will entertain fresh employment data over the next two days, beginning with ADP’s private payrolls report on Thursday. The Department of Labor will issue its official nonfarm payrolls report Friday morning at 8:30 a.m. ET. The report is expected to show another month of solid hiring for the world’s largest economy.

Featured image courtesy of Shutterstock. 

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi