The Federal Reserve said it would begin tapering this month.
Kevin Dietsch/Getty ImagesThe stock market reversed course to close at new highs Wednesday after the Federal Reserve said it would begin reducing its monthly bond purchases this month. The emergency support program was launched in response to the pandemic.
The Fed said in a statement that it would begin tapering its monthly bond purchases of $120 billion by $15 billion this month, and it would reduce its purchases at a faster pace starting in December. The program will end by June.
After the statement, the Dow Jones Industrial Average broke out of the red to gain 104 points, about 0.3% higher on the day. The blue-chip benchmark closed above 36,000 for the first time Tuesday. The S&P 500 rose 0.7% after having been in the red earlier, while the Nasdaq Composite ‘s gains accelerated to 1%. All three indexes notched record closes on Wednesday.
Investors had largely expected the Fed’s news. The central bank also offered markets a bit of assurance when it said it was “prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
“The Fed has zero intentions of draining liquidity too quickly,” wrote Jamie Cox, managing partner for Harris Financial Group.
Before the statement, Michael Sheldon, chief investment officer at RDM Financial, said he wanted to see “that the program will not be on auto pilot and that they can make adjustments to the amount and timetable based on incoming economic and market based data.”
The yield on the 10-year Treasury note rose to 1.58% after hovering at around 1.57% for most of the afternoon. Many on Wall Street see the combination of less stimulus from the Fed and long-term inflation expectations above 2% as a force that could push Treasury yields higher, which could, in turn, hurt stock valuations.
Another risk for stocks was averted when the Fed signaled that short-term interest rates would remain low for the foreseeable future. With inflation running hot and economic growth slowing, investors fear that a rate increase could also cause a selloff in stocks.
That fear seemed subdued Wednesday. The 1-year Treasury yield ended the day at 0.117%, below its intraday high of 0.175%.
Also read: The Fed Lays Out Plans to Start Tapering This Month
In commodity markets, oil prices fell back amid indications that U.S. crude supply is higher than expected and amid U.S. pressure on the OPEC+ group of national producers to ramp up production.
U.S. futures for West Texas Intermediate crude fell 4.8% to around $79.89 a barrel after trading near $85 earlier in the week, which were the highest levels since late 2014.
Analysts cited data from the American Petroleum Institute on Tuesday showing that U.S. crude inventories jumped by 3.6 million barrels last week—far more than the 1.5 million estimated—in a surprise to supply expectations. On Wednesday, the Energy Information Administration said U.S. crude inventories rose by 3.3 million barrels for the week ended Oct. 29.
Here are seven stocks on the move Wednesday:
Lyft (ticker: LYFT) stock gained 8.2% after the company’s earnings report showed a more than 50% rise in adjusted earnings before interest, tax, and noncash expenses in its latest quarter. Sales were $864 million, above expectations for $863 million.
Lyft’s results helped rival Uber Technologies (UBER) stock rise 6.6% ahead of its Thursday earnings report.
Bed Bath & Beyond (BBBY) stock gained 15% after the company announced an increased stock buyback program and a partnership with Kroger (KR) to sell certain products at the grocer’s locations and through online channels. Earlier Wednesday, Bed Bath & Beyond stock skyrocketed 60%, benefiting from its status as a “meme stock,” as the initial buying had forced short sellers to buy shares back.
Fundamentally, the company’s new plans show it is trying to pivot into a digital sales strategy. “The launch of a digital marketplace and the collaboration with Kroger demonstrates management’s willingness to think outside the box, accelerate the digital transformation, and add new revenue streams, although it is too early to project the financial benefit from these two initiatives,” wrote Joe Feldman, Telsey analyst.
Kroger, which will take fees from Bed Bath & Beyond, saw its stock gain 5.5%.
Zillow Group (Z) stock dropped 23% after seeing several analyst downgrades after the company said it will terminate its home buying and selling business.
Shake Shack (SHAK) stock gained 6.9% after getting upgraded to Buy from Neutral at Northcoast.
CVS Health (CVS) stock rose 5.7% after the company reported a third-quarter profit of $1.97 a share, beating estimates of $1.78 a share, on sales of $73.8 billion, above expectations for $70.5 billion.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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November 04, 2021 at 04:27AM
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