Positive Reaction To Fed Announcement May Lead To Continued Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to extend the rally seen late in the previous session.

The markets may continue to benefit from a positive reaction to the Federal Reserve’s highly anticipated monetary policy announcement on Wednesday.

While the Fed accelerated the pace of tapering its asset purchases and signaled as many as three interest rate hikes next year, traders seem relieved the central bank was not even more hawkish.

Analysts have also suggested the Fed announcement removed some uncertainty about the outlook for monetary policy, allowing traders to focus on economic and corporate fundamentals.

On the U.S. economic front, the Labor Department released a report showing a modest rebound in first-time claims for unemployment benefits in the week ended December 11th.

Reflecting the positive reaction to the Fed policy announcement, stocks showed a substantial turnaround over the course of the trading session on Wednesday after moving to the downside early in the day.

The major averages moved sharply higher following the Fed announcement, largely offsetting the pullback seen on Monday and Tuesday.

After tumbling as much as 1.2 percent in early afternoon trading, the tech-heavy Nasdaq soared 327.94 points or 2.2 percent to 15,565.58. The Dow also jumped 383.25 points or 1.1 percent to 35,927.43, while the S&P 500 surged 75.76 points or 1.6 percent to 4,709.85.

The late-day rally on Wall Street came after the Fed announced its widely expected decision to accelerate the pace of reductions to its asset purchases program.

Citing inflation developments and further improvement in the labor market, the Fed said it has decided to reduce the monthly pace of its net asset purchases by $30 billion per month, double the previously announced $15 billion per month.

Beginning in January, the Fed will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage-backed securities by at least $20 billion per month.

The $60 billion per month in asset purchases is half the $120 billion per month the Fed bought from June 2020 to October 2021.

The Fed said it expects similar reductions in the pace of net asset purchases will likely be appropriate each month, pointing to an end to the program next March.

Analysts partly attributed the subsequent rally to relief that the Fed was not more aggressive in accelerating the timetable for halting its asset purchases.

Meanwhile, the Fed also announced its widely expected decision to keep the target range for the federal funds rate at zero to 0.25 percent.

The Fed noted inflation has exceeded its 2 percent target for some time but predicted interest rates will remain at near-zero levels until labor market conditions have reached levels consistent with its assessments of maximum employment.

The central bank’s latest projections forecast as many three rate hikes in 2022 compared to the lone rate hike forecast in September.

Despite the prospect of sooner than expected rate hikes, analysts suggested traders were pleased with the increased level of certainty provided by the Fed’s latest projections.

With the focus on the Fed, traders largely shrugged off some key U.S. economic data, including a Commerce Department report showing retail sales rose by much less than expected in November.

Semiconductor stocks moved sharply higher over the course of the session, driving the Philadelphia Semiconductor Index up by 3.7 percent.

Substantial strength also emerged among networking stocks, as reflected by the 3.1 percent spike by the NYSE Arca Networking Index.

Pharmaceutical stocks also turned in a particularly strong performance on the day, with the NSYE Arca Pharmaceutical Index surging up by 2.9 percent to a record closing high.

Drugmaker Eli Lilly (LLY) helped lead the sector higher after raising its full-year 2021 guidance and providing an upbeat forecast for 2022 due in part to strong sales of its Covid-19 therapies.

Biotechnology, computer hardware and software stocks also saw considerable strength, while notable weakness remained visible among gold and steel stocks.

Commodity, Currency Markets

Crude oil futures are climbing $0.52 to $71.39 a barrel after inching up $0.14 to $70.87 a barrel on Wednesday. Meanwhile, after falling $7.80 to $1,764.50 an ounce in the previous session, gold futures are jumping $22.50 to $1,787 an ounce.

On the currency front, the U.S. dollar is trading at 114.12 yen versus the 114.04 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1348 compared to yesterday’s $1.1289.

Asia

Asian stocks ended Thursday’s session on a mixed note after the Federal Reserve said it would accelerate its pullback of economic stimulus and was likely to raise interest rates three times next year to tackle elevated inflation.

Chinese markets ended higher, with industrial, financial and energy stocks leading the surge. The benchmark Shanghai Composite Index climbed 27.39 points, or 0.8 percent, to 3,675.02, while Hong Kong’s Hang Seng Index ended up 54.74 points, or 0.2 percent, at 23,475.50 despite concerns about more U.S. sanctions on Chinese companies.

Japanese stocks rose the most in nearly seven weeks as the FOMC decision on winding down pandemic-era bond purchases and lifting interest rates three times next year came in line with market expectations.

The Nikkei 225 Index spiked 606.60 points, or 2.1 percent, to 29,066.32, while the broader Topix ended 1.5 percent higher at 2,013.08.

Tech shares surged, with Tokyo Electron, Screen Holdings and Advantest rallying 3-5 percent. Uniqlo operator Fast Retailing rose 3 percent.

In economic news, Japanese manufacturing activity expanded for an 11th straight month in December but at a slightly slower pace than the previous month, a survey revealed. Another report showed the country posted a trade deficit for the fourth month in a row.

Meanwhile, Australian markets ended in the red as unemployment blew past expectations in November, raising pressure on the Reserve Bank to end its asset purchases altogether in February.

Separately, the manufacturing sector in Australia expanded at a slower pace in December, the latest survey from Markit Economics showed.

The benchmark S&P/ASX 200 Index dipped 31.40 points, or 0.4 percent, to 7,295.70, extending losses into a third straight session. The broader All Ordinaries Index ended down 17.70 points, or 0.2 percent, at 7,618.50.

Biotech giant CSL plunged 8.2 percent after an announcement that it has completed a $6.3 billion equity raising from institutional investors to fund the $11.7 billion acquisition of Swiss drug maker Vifor Pharma. Energy stocks fell broadly, with Beach Energy losing nearly 2 percent.

Seoul stocks rose for a second straight session as a signal by the Federal Reserve that it would raise interest rates in 2022 reduced a source of uncertainty for markets. The Kospi climbed 17.02 points, or 0.6 percent, to 3,006.41.

Pharmaceutical giant Samsung Biologics jumped 6 percent as the country’s new Covid-19 cases hit a fresh high of 7,622.

Europe

European stocks have rallied on Thursday as a signal by the Federal Reserve that it would raise interest rates in 2022 reduced a source of uncertainty for the markets.

The Fed said it would double the speed of the tapering of its bond purchasing program and projected three rate hikes in 2022.

Traders are also reacting to central bank decisions from the region, with the Bank of England raising its key interest rate, while the European Central Bank left interest rates unchanged but further reduced its bond purchases.

Earlier in the day, the Swiss National Bank maintained its expansionary monetary policy, as widely expected. Policymakers of the central bank decided to retain the policy rate and interest on sight deposits at the SNB at -0.75 percent.

While the German DAX Index has jumped by 1.5 percent, the French CAC 40 Index is up by 1.2 percent and the U.K.’s FTSE 100 Index is up by 1 percent.

Novartis has moved sharply higher after it launched a new share buyback worth up to $15 billion to be executed by the end of 2023.

Swiss Re has also shown a notable move to the upside after appointing new digital chief in a management shake-up.

Wacker Chemie AG has also risen. The chemical company said, by 2030, it plans to cut its absolute greenhouse gas emissions by 50 percent relative to 2020.

Fund manager Schroders has also moved higher on news that it is in advanced talks to buy a 75 percent stake in Greencoat Capital.

Valneva shares have soared. The French biotech company said its Covid-19 vaccine candidate was efficient as a booster for people who had received the same shot as an initial vaccination.

Meanwhile, online fashion retailer Boohoo has plummeted after warning that expectations for its 2021-22 year will be lower than previously guided.

Metro AG has also tumbled after the retailer posted a loss for its fiscal year 2021 and said it doesn’t plan to distribute a dividend for the period.

U.S. Economic Reports

A report released by the Labor Department on Thursday showed a modest rebound in first-time claims for U.S. unemployment benefits in the week ended December 11th.

The Labor Department said initial jobless claims rose to 206,000, an increase of 18,000 from the previous week’s revised level of 188,000.

Economists had expected jobless claims to inch up to 195,000 from the 184,000 originally reported for the previous week.

The slightly bigger than expected increase came after jobless claims fell to their lowest level since 1969 in the previous week.

The Commerce Department also released a report showing new residential construction in the U.S. soared by much more than expected in the month of November.

The report said housing starts skyrocketed by 11.8 percent to an annual rate of 1.679 million in November after slumping by 3.1 percent to a revised rate of 1.502 million in October.

Economists had expected housing stocks to jump 3.0 percent to a rate of 1.565 million from the 1.520 million originally reported for the previous month.

The Commerce Department said building permits also surged up by 3.6 percent to an annual rate of 1.712 million in November after spiking 4.2 percent to a revised rate of 1.653 million in October.

Building permits, an indicator of future housing demand, had been expected to rise by 0.6 percent to a rate of 1.660 million from the 1.650 million originally reported for the previous month.

Meanwhile, the Philadelphia Federal Reserve released a report showing a substantial slowdown in the pace of growth in regional manufacturing activity in December.

The Philly Fed said its diffusion index for current activity tumbled to 15.4 in December from 39.0 in November, although a positive reading still indicates growth. Economists had expected the index to slump to 30.0.

Looking ahead, the Philly Fed said its future general activity and new orders indexes moderated, but the surveyed firms remained generally optimistic about growth over the next six months.

At 9:15 pm ET, the Federal Reserve is due to release its report on industrial production in the month of November. Industrial production is expected to increase by 0.7 percent in November after jumping by 1.6 percent in October.

The Treasury Department is scheduled to announce the details of this month’s auction of twenty-year bonds at 11 am ET.

Stocks In Focus

Shares of Accenture (ACN) are moving sharply higher in pre-market trading after the consulting firm reported better than expected fiscal first quarter results and raised its full-year guidance.

Delta Air Lines (DAL) may also see initial strength after saying it now expects to report a pre-tax profit in the fourth quarter after previously forecasting a pre-tax loss due rising fuel costs.

Shares of Shopify (SHOP) are also likely to move to the upside after Evercore upgraded its rating on the e-commerce company’s stock to Outperform from In Line.

On the other hand, shares of Lennar (LEN) may come under pressure after the homebuilder reported fiscal fourth quarter results that missed analyst estimates.