By Mark DeCambre and Sara Sjolin, MarketWatch
Dollar jumps to 2-week high as Federal Reserve says it will
start asset reduction next month
U.S. stock benchmarks ended a volatile session mostly in the
green, with the Dow and the S&P 500 carving out fresh all-time
highs, as the Federal Reserve announced that, for the first time in
nine years, it would start reducing the size of its $4.5 trillion
asset portfolio commencing in October.
The U.S. central bank kept interest rates unchanged, as widely
expected, but said it would start to shrink its balance sheet by
$10 billion a month. The Fed also signaled a December rate increase
remains on the table as the central bank embarks on an
unprecedented unwind of crisis-era asset purchase that had helped
to buoy markets over the past decade.
During a news conference to detail its policy plans, Yellen
described the unwind would be conducted "gradually and
predictably."
Check out:A live blog of the Fed's news conference
(http://blogs.marketwatch.com/capitolreport/2017/09/20/fed-decision-and-janet-yellen-press-conference-live-blog-and-video-2/)
"Even though this is a slow and deliberate and thoughtful unwind
plan, it is not without its potential to rattle markets," said
Kristina Hooper, global market strategist at Invesco.
The Dow Jones Industrial Average was up 41.79 points, or 0.2%,
at 22,412.59, buoyed by sharp gains in shares of McDonald's Corp.
(MCD), and Pfizer Inc.(PFE). Apple Inc. (AAPL) shares led Dow
laggards, down 1.7%, on negative news.
The S&P 500 index , meanwhile, finished up 1.59 point, or
less than 0.1%, at 2,508.24, after briefly touching its own fresh
intraday day record at 2,508.85. Financials and Industrials led the
day's advances, while a 1% tumble in the consumer-staples sector,
underpinned by a drop in shares of General Mills Inc. (GIS)
pressured the broad-market gauge.
The Nasdaq Composite Index , meanwhile, ended down 5.28 points,
or less than 0.1%, at 6,456.94.
The Fed committed to reducing the bonds they own at a pace of
$10 billion a month and increasing that pace by $10 billion every
three months to a maximum pace of $50 billion a month or $600
billion a year.
Meanwhile, 10-year Treasury note yield jumped to 2.28%, compared
with 2.23% earlier in the session, with expectations for higher
rates and additional monetary tightening, via the portfolio
decrease, encouraging selling in government bonds, pushing yields,
which move in the opposite direction to prices, higher. The dollar,
which draws bidders in a higher interest-rate regime, enjoyed a
fillip, up 0.7% at 92.475, based on the ICE U.S. Dollar Index ,
which measures the buck against a half-dozen currencies.
Read:Why stock market investors shouldn't sweat a shrinking Fed
balance sheet
(http://www.marketwatch.com/story/why-stock-market-investors-shouldnt-sweat-a-shrinking-fed-balance-sheet-2017-09-19)
The Fed kept its targeted federal-funds rate between 1% to
1.25%, and said the devastation caused by Hurricanes Harvey and
Irma isn't likely to materially alter the course of the economy
over the medium term, underscoring the central bank's determination
to normalize rate policy.
The Fed's interest-rate projections, known as the so-called dot
plot, suggests an interest-rate hike in December and three more in
2018.
Some industry participants have been describing the asset
reduction as the "great unwind
(http://www.marketwatch.com/story/how-the-great-central-bank-unwind-could-ignite-the-next-financial-crisis-2017-09-20)"
and worrying that it might roil markets. "It is the start of
something unknown, it is going to start jitters. It is going to
make us tremble," said John Manley, chief equity strategist at
Wells Fargo Funds Management.
However, the Fed is aiming to offer as little disruption as
possible, he noted.
"I'll admit that it feels a little surreal that this Federal
Reserve with its addiction to manipulating markets is actually
trying to kick the habit. The unwinding of the balance sheet will
dominate markets for at least the next two years and cements our
outlook for higher rates," said Bryce Doty, senior portfolio
manager at SIT Investments, which manages some $7 billion.
Yellen emphasized, during the news conference, that the central
bank was monitoring stubbornly low inflation closely, with an eye
to seeing it return to its 2% annual target. Inflation has been
kept in check, despite an otherwise healthy labor market, which
should theoretically lift prices and inflation. The Fed chief said
policy makers are aware of the risk of prices suddenly jolting
higher: "We want to be careful not to allow the economy to overheat
to somewhere later on to have to have tighten monetary policy
rapidly and...cause a recession."
Several central-bank officials already wanted to start winding
down the Fed's portfolio of government securities in July, but the
majority wanted to hold until a later date.
In other economic news on Wednesday, a reading on existing-home
sales for August showed that sales dropped for the fourth time in
five months as real-estate agents continue to blame a lack of
available homes to buy. The National Association of Realtors said
existing home sales fell
(http://www.marketwatch.com/story/existing-home-sales-fall-in-august-for-the-fourth-time-in-five-months-2017-09-20)1.7%
to a seasonally adjusted rate of 5.35 million.
See:MarketWatch's economic calendar
(http://www.marketwatch.com/economy-politics/calendars/economic).
Stock movers: Shares of General Mills slid 6% after the food
company, which brands include Cheerios, Haagen-Dazs and Betty
Crocker, missed profit and sales expectations
(http://www.marketwatch.com/story/general-mills-stock-tumbles-after-profit-and-sales-miss-2017-09-20).
Alnylam Pharmaceuticals Inc. (ALNY) soared 52% after positive
results in a late-stage trial
(http://www.marketwatch.com/story/sanofi-alnylam-report-positive-results-from-late-stage-trial-of-hattr-amyloidosis-treatment-2017-09-20).
Shares of American Outdoor Brands Corp.(AOBC) declined 5.2%,
despite reports late Tuesday that President Donald Trump will ease
rules on gun exports.
Apple shares declined 1.7% Wednesday morning after the tech
company reportedly admitted issues
(http://www.marketwatch.com/story/apple-admits-issues-with-apple-watch-connectivity-stock-falls-2017-09-20)
with connectivity of its new Apple Watch Series 3.
Bed Bath & Beyond Inc.(BBBY) slumped nearly 16%, marking its
lowest close since 2009 and its second-worst drop on record,
according to WSJ Market Group Data, after the retailer late Tuesday
released earnings that widely missed forecasts
(http://www.marketwatch.com/story/bed-bath-beyond-earnings-miss-widely-stock-halted-2017-09-19).
FedEx Corp.(FDX) added 2.1% after the logistics company late
Tuesday reported earnings below forecasts
(http://www.marketwatch.com/story/fedex-shares-down-after-earnings-company-pins-miss-on-cyberattack-hurricane-harvey-2017-09-19),
saying the quarter offered "significantly operational challenges"
due to a cyberattack and Hurricane Harvey.
Microsoft Corp. (MSFT) slipped 0.7%, even as the software major
late Tuesday increased its dividend to 42 cents a share
(http://www.marketwatch.com/story/microsoft-hikes-quarterly-dividend-announces-changes-to-board-of-directors-2017-09-19).
Other markets: Stocks in Europe were ended flat, with the U.K.'s
FTSE 100 index
(http://www.marketwatch.com/story/ftse-100-edges-up-as-fed-decision-takes-center-stage-2017-09-20)particularly
underperforming due to a rise in the pound. Sterling strengthened
after U.K. retail sales for August showed a bigger rise than
expected
(http://www.marketwatch.com/story/uk-retail-sales-rise-faster-than-expected-2017-09-20).
Asian stocks closed mixed
(http://www.marketwatch.com/story/asian-markets-press-pause-ahead-of-fed-announcement-2017-09-19)
as traders there remained cautious ahead of the Fed's call.
Crude-oil prices rose to a four-month high to settle at
(http://www.marketwatch.com/story/crude-prices-rise-on-signs-of-drop-in-global-inventories-2017-09-20)
$50.41 a barrel, while gold futures ended higher at $1,316.40 an
ounce, but pulled back somewhat in electronic trade
(http://www.marketwatch.com/story/gold-prices-pause-losing-skid-as-fed-signals-awaited-2017-09-20)after
the Fed decision.
(http://www.marketwatch.com/story/gold-prices-pause-losing-skid-as-fed-signals-awaited-2017-09-20)
(END) Dow Jones Newswires
September 20, 2017 16:10 ET (20:10 GMT)
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