Wall Street Close: Fed and stimulus hopes keep the bidders bidding

• The Nasdaq Composite closed at a record high, adding 63.13 points, or 0.5%,
• The S&P 500 gained 6.55 points or 0.18% and the Dow Jones Industrial Average fell 44.77 points, or 0.15%.

The US benchmarks were a mixed bag at the close on Wednesday, managing to finish off their session lows in the wake of the Federal Reserve’s less dovish than an expected policy statement and Fed Powell presser turnaround.

Growing hopes of deals on US fiscal stimulus as well as Brexit and the Federal Reserve’s pledge to keep its benchmark interest rate near zero offset concerns over the economic impact of COVID-19.

The Fed’s nod to tapering its QE programme after “substantial progress” was an initial concern for markets on the release of its statement. 

There was a moment there where markets were disappointed on the initial statement’s lack of clarity and inaction from the Fed.

The Federal Reserve noted near-term downside risks, but they have not been enough for a case for WAM extension which is what the market had been expecting. 

However, the US central bank promised to keep the ball rolling in terms of supplying cash into the financial system.

US stocks also gained during the Fed’s presser and consequently, the Nasdaq Composite closed at a record high, adding 63.13 points, or 0.5%, to 12,658.19. The S&P 500 gained 6.55 points, or 0.18%, to 3,701.17. The Dow Jones Industrial Average fell 44.77 points, or 0.15%, to 30,154.54.

Jerome Powell’s opening statement was ”we will continue to provide powerful support until the recovery is complete.” 

Powell’s presser comments

”We have the ability to buy more bonds, or buy longer-term bonds, and may use it.”

”Any time we feel like economy could use stronger accommodation we ‘would be prepared to provide it.’

”When we see substantial progress we will say so ‘well in advance’ of tapering. Lowering QE is ‘some ways off.’

Meanwhile, a fiscal deal agreement remains elusive.

Biden: Does not think relief package will happen today

However, investors are already in anticipation of a fiscal deal and nominal yields may remain capped, keeping real rates reverting on a downward trajectory and supporting the stock market for the near and medium-term.

US data was raising red flags

”November Retail Sales fell 1.1% MoM following a downwardly revised -0.1% MoM in October (from +0.3%).

”Two consecutive months of faltering retail sales is now casting a long shadow over the recovery and highlight the fragility of activity despite the impressive rebound in Q3. Retail sales account for an estimated 35% of private consumption, the biggest component of GDP,” analysts at ANZ bank explained.

”The preliminary PMI report for December also highlighted a slowing economy. Due to regional COVID restrictions, the services PMI fell sharply.

The manufacturing PMI was stable.”