While you were sleeping: Record ride continues

Wednesday 14th December 2016

Wall Street climbed to fresh records, again, while US Treasuries slid as investors geared up for the Federal Reserve’s first interest rate hike in a year.

The Federal Open Market Committee began its two-day policy meeting and is expected to announce a rate increase on Wednesday.

Wall Street rallied. In 1.19pm trading in New York, the Dow Jones Industrial Average rallied 0.7 percent, while the Nasdaq Composite Index climbed 1.3 percent. In 1.04pm trading, the Standard & Poor’s 500 Index gained 0.7 percent.

US Treasuries fell, pushing yields on the 10-year yield note two basis points higher to 2.49 percent.

"The macro and fundamental background are favourable for stocks, and we expect equities to trend higher as we head into 2017," Terry Sandven, chief equity strategist at US Bank Wealth Management, told Reuters.

The Dow rose to a record 19,953.75, the S&P 500 hit a record 2,276.88, while the Nasdaq gained to a record 5,486.75.

"Investors are encouraged by expectations that [US President-elect Donald] Trump and a GOP-controlled Congress will enact pro-growth policies and we're seeing modest inflation creep in, while housing remains stable and wages continue to firm,” Sandven noted.

In the Dow, advances in shares of IBM and those of Intel, recently trading 2.2 percent and 2.1 percent higher respectively, led the gains. Bucking the trend were shares of Boeing and those of Procter & Gamble, down 0.8 percent and 0.6 percent respectively.

Shares of Exxon Mobil rallied, trading 2.4 percent higher as of 1.24pm in New York. Trump nominated CEO Rex Tillerson to be his secretary of state.

Meanwhile, a US financial watchdog warned about high valuations.

"Valuations are high in some key asset classes," the Office of Financial Research said in its 2016 Financial Stability report. "The cyclically adjusted price-to-earnings ratio has only reached its current level prior to the three largest equity market declines in the last century."

"We continue to see important downside risks to US growth, though that alone does not threaten financial stability," it noted. "Specifically, slow global growth and the strong dollar continue to put pressure on US corporate earnings."

In Europe, the Stoxx 600 Index ended the session with a 1.1 percent climb from the previous close. Germany’s DAX Index increased 0.8 percent, France’s CAC 40 Index rose 0.9 percent, while the UK’s FTSE 100 Index added 1.1 percent.

“We see earnings momentum and critically revenue momentum as stabilising,” UBS strategists led by Nick Nelson wrote in a Tuesday note, Bloomberg reported. “We stick with a slight tilt to cyclicals in our sector strategy, but would refrain from chasing all cyclicals here.”

BusinessDesk.co.nz

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