Wall Street Shrugs Off Hawkish Fed En Route to New Highs

U.S. stocks eked out new highs on Thursday as investors digested Fed Day without losing their appetite for risk.

Wall Street Record Streak Continues

Equities rallied at the tail end of a largely uneventful day in the market. The large-cap S&P 500 Index gained 0.1% to close at 2,508.24, its fourth consecutive all-time high. Seven of 11 sectors registered gains, led by energy, industrials and financials stocks. On the opposite side of the ledger, consumer discretionary and utilities stocks were the biggest laggards.

The benchmark’s gains have really narrowed recently, with the most recent four-day run tacking on a mere 13 points.

Blue-chip stocks also contributed to the rally on Wednesday, with the Dow Jones Industrial Average registering its seventh straight record-breaking rally and ninth daily increase overall. The Dow 30 climbed 0.2% to close at 22,412.59.

Meanwhile, the Nasdaq Composite Index pared its losses all the way down to 0.1%. It settled at 6,456.04.

Volatility Drops

Wall Street’s favorite measure of implied volatility dropped below 10 on Wednesday, reaching its lowest since July 26. The Chicago Board Options Exchange (CBOE) Volatility Index fell 3.9% to 9.78. The so-called “fear index” trades on a scale of 1-100, where 20 represents the historic mean.

The VIX normally trades inversely with the S&P 500. A low Vol reading is normally associated with bullish conditions for U.S. equities.

Volatility has spiked on several occasions throughout the year, as markets responded to geopolitical unrest. Underlying volatility is down more than 30% since Jan. 1.

The Great Unwind

The Federal Reserve surprised no-one Wednesday when it kept interest rates at 1.25%. Officials also played to expectations by announcing October as the start of the ‘great unwind’.

That of course refers to the scaling down of the Fed’s $4.5 trillion balance sheet. Asset reduction has been in the cards for some time, as officials look to normalize rein in monetary easing.

The Fed indicated it would start to shrink its balance sheet by $10 billion a month. At this pace, it will take at least two years for the balance sheet to be cut in half.

Fed officials also maintained their outlook for one more interest rate increase in calendar 2017. This was seen by some analysts as a vote of confidence for an economy that has looked lackluster for long stretches of the year.

U.S. gross domestic product (GDP) accelerated 3% annually in the second quarter. A repeat of that performance will be difficult in Q3 in the wake of Hurricanes Harvey and Irma.

Asian Markets Mixed Following Fed

Asian stocks on Thursday were mixed through the midday, as investors awaited the fallout from the Bank of Japan meeting. The Japanese Nikkei rose 0.8% before noon Tokyo time, extending its one-month gain to 5.6%.

Chinese markets were mixed, with the CSI 300 Index edging up slightly. Hong Kong’s Hang Seng Index edged lower through midday trading.

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