Stocks took a leg higher Wednesday afternoon as investors digested a key monetary policy decision and upgraded economic outlook from the Federal Reserve. Treasury yields climbed, and the yield on the benchmark 10-year Treasury note jumped to more than 1.65%.
The S&P 500 rose about 0.2%, while the Dow traded about 200 points higher to reach a record high of more than 33,000. The Nasdaq turned positive, shaking off earlier losses. The CBOE Volatility Index, or VIX, dropped to a fresh pandemic-era low of 19.2, or the lowest level in a year following months of virus-related anxiety in the markets.
Investors closely eyed the Federal Reserve's March monetary policy decision Wednesday afternoon, focusing specifically on the central bank's updated economic outlook. In the Fed's updated economic projections, officials telegraphed no change to monetary policy this year and that borrowing costs would likely remain near zero through at least 2023, with the median outlook among Fed officials unchanged from the December forecast. However, seven of the 18 Federal Open Market Committee Members said they see at least one rate hike by 2023, up from the five who forecasted such an outcome in December.
The Fed also upgraded its outlook for unemployment and inflation in the U.S. over the next several years. FOMC members now expect the unemployment rate to dip to 4.5% by the end of this year with inflation of 2.4%. Three months earlier, the Fed expected an unemployment rate to improve to only 5.0% with core personal consumption expenditures rising by just 1.8% by year-end. Real GDP growth will likely come in at 6.5% this year, the Fed projected, up sharply from its previous 4.2% growth forecast.
The projections helped to elucidate the central bank's assessment of the economy in recovery, and offered another signal to investors about how soon a tweak to the current monetary policy posturing might take place. For now, the Fed has signaled it will keep monetary policy loose, with benchmark interest rates near zero and asset purchases at a clip of $120 billion per month, as the economic recovery takes place.
Heading into Wednesday's monetary policy decision, fears that a rapid rise in inflation might prompt a quicker-than-expected tightening of monetary policy kept investors on edge over the past month, spurring a selloff in technology names and accelerating a rotation into cyclical stocks like energy and bank shares.
"The Fed certainly gave the market some meat to chew on, raising its economic growth forecast for 2021 significantly to 6.5%. The implication of this projection is that, at some point in 2022, U.S. GDP will exceed its pre-pandemic path," Seema Shah, chief strategist of Principal Global Investors, wrote in an email to Yahoo Finance.
"Despite this very strong outlook, the Fed played down the risk from inflation, with their projections showing a very modest and, importantly, only temporary overshoot of their 2% target – certainly a more subdued inflation outlook than many investors were fearing," Shah added. "Equity markets should find some reassurance in those forecasts, although there will likely be some bond market fright from the latest dot plot which showed that a few more members of the FOMC think they may start raising interest rates in 2023."
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4:02 p.m. ET: S&P 500, Dow jump to record highs after Fed maintains outlook for near-zero rates, quells inflation concerns
Here were the main moves in markets as of 4:02 p.m. ET:
12:33 p.m. ET: U.S. Treasury announces more than 90 million $1,400 stimulus checks have so far been dispersed
The U.S. Treasury Department announced on Wednesday that more than 90 million stimulus checks have so far been sent to Americans, as part of Congress's latest $1.9 trillion coronavirus relief package. These payments began processing last Friday, and have been sent out to Americans in tranches, depending in part on whether they are receiving the checks via direct deposit or by mail.
"Economic Impact Payments are rolling out in tranches to millions of Americans in the coming weeks," the department said in a statement. "The first batch of payments were mostly sent by direct deposit, which some recipients started receiving this past weekend. As of today, all recipients of this first batch of direct deposit payments will have access to their funds."
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11:36 a.m. ET: Disney shares jump after CEO says California parks to reopen April 30: CNBC
The date would mark one year since the theme parks – California Adventure and Disneyland in Anaheim – were temporarily closed due to the pandemic. Though California issued new state guidance allowing amusement parks to begin reopening on April 1 with capacity restrictions, Chapek had said earlier this month that it would take an additional several weeks for the company to bring back furloughed workers and prep the parks for reopening. The company laid off tens of thousands of workers over the course of the pandemic, mostly in its theme park and cruise operations.
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10:57 a.m. ET: Equity inflows over the last three weeks were the largest since the market bottom last year: BofA
Equity traders piled into stocks amid the latest selloff in technology shares over the past several weeks, according to new data from Bank of America.
Stock inflows among Bank of America clients totaled $3.8 billion last week, with that sum ranking in the 95th percentile of the bank's data history.
"Inflows over the last three weeks were the largest since the three-week period after the market bottomed last March," the strategists said in a note Wednesday. "Although seven of 11 sectors saw inflows, it was another big week for Tech and Cons Disc: both saw weekly inflows near record levels for the third straight week."
However, these strong buying patterns are likely a sign of weaker returns in the short-run, the strategists added.
"Extreme inflows are typically a signal of weak near-term (one-month) returns and another sign of increasingly euphoric equity sentiment," they said.
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9:30 a.m. ET: S&P 500 and Dow drift ahead of Fed decision; Nasdaq slides
Here's where markets were trading after the opening bell Wednesday morning:
S&P 500 (^GSPC): -15.66 points (-0.4%) to 3,947.05
Housing starts slumped 10.3% in February to a seasonally adjusted annual rate of 1.421 million, the Commerce Department said Wednesday. This followed an upwardly revised drop of 5.1% in January. Consensus economists were looking for February's decline to come in at just 1.3%, according to Bloomberg consensus data.
Building permits, which serve as an indicator of future homebuilding, slid by 10.8%. This also outpaced the drop of 7.2% expected for the month, and more than reversed an upwardly revised jump of 10.7% in January.
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7:19 a.m. ET Wednesday: Stock futures point to a mixed open
Here's where markets were trading as of 7:19 a.m. ET Wednesday morning:
S&P 500 futures (ES=F): 3,957.5, down 5 points or 0.13%
Dow futures (YM=F): 32,861.00, up 26 points or 0.08%
Nasdaq futures (NQ=F): 13,087.75, down 63.75 points or 0.48%
Gold (GC=F): -$0.90 (-0.05%) to $1,730.00 per ounce
10-year Treasury (^TNX): +3.4 bps to yield 1.6257%
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6:01 p.m. ET Tuesday: Stock futures open slightly higher
Here were the main moves in markets as of 6:01 p.m. ET:
S&P 500 futures (ES=F): 3,969.00, up 6.5 points or 0.16%
Dow futures (YM=F): 32,873.00, up 38 points or 0.12%
Nasdaq futures (NQ=F): 13,173.25, up 21.75 points or 0.17%
U.S. flags fly out in front of the New York Stock Exchange (NYSE) is seen in New York, U.S., February 16, 2021. REUTERS/Brendan McDermid ·Brendan McDermid / reuters
