US markets closed higher on Yellen testimony, strong economic data

18 Nov 2016 Evaluate

The US markets closed higher on Thursday, as an improving economic picture and greater clarity on Federal Reserve policy allowed the market’s postelection uptrend to continue, putting the S&P 500 and Dow within reach of attaining new record closing highs. In testimony before the House-Senate Joint Economic Committee, Federal Reserve Chairwoman Janet Yellen stated that an interest-rate hike could come relatively soon, further underlining expectations a rate move could come at the central bank’s December meeting. While that has long been seen as a likely time for a rate increase announcement, some investors have speculated on the possibility of a delay following the unexpected election of Donald Trump, which injected a measure of uncertainty into economic outlooks. Yellen added that the US central bank would change its outlook as necessary as the new administration rolls out plans for perhaps hundreds of billions of dollars in tax cuts and additional government spending. She also suggested the new government keep in mind that the United States is near full employment and inflation may be rising. For the time being, Yellen enlightened that incoming economic data justified a rate hike relatively soon and, absent any dramatic changes, a gradual pace of hikes after that.

On the economy front, the number of people who applied for unemployment benefits last week sank to a 43-year low, reflecting the strongest labor market since before the Great Recession. Initial jobless claims fell by 19,000 to 235,000 in the week stretching from November 6 to November 12. Initial claims have been under the key 300,000 threshold for 89 straight weeks - and counting. The last time that happened was in 1970. The US’s unemployment rate also sits near an eight-year low of 4.9%. Continuing jobless claims decreased by 66,000 to 1.98 million in the week ended November 5. That’s the first time they have tumbled below 2 million since mid-2000. Consumer inflation rose in October at the fastest rate in six months, and although the spike stemmed largely from more expensive gasoline, rising price pressures are likely to spur the Federal Reserve to carry through with an increase in interest rates before year end. The consumer price index jumped 0.4% last month. Still, consumer prices continue to move higher. The CPI has risen at a 1.6% in the past 12 months, the biggest increase in two years. That could cement plans by the Fed to raise interest rates in December.

Meanwhile, construction on new houses surged nearly 26% in October to the highest level in nine years, helped by a spike in multifamily buildings. Housing starts climbed to an annual rate of 1.32 million from a revised 1.05 million in September. Builders also started work on new single-family homes at the fastest pace since October 2007. Single-family-home starts rose nearly 11% to a 869,000 annual clip. The Philadelphia Fed stated that its manufacturing index eased in November to a reading of 7.6 from 9.7 in October. It marked the fourth month above the zero level indicating improving conditions, and measures of general activity, new orders, and shipments all remained positive.

The Dow Jones Industrial Average added 35.68 points or 0.19 percent to 18,903.82, Nasdaq was up 39.39 points or 0.74 percent to 5,333.97, while S&P 500 edged higher by 10.18 points or 0.47 percent to 2,187.12.

The Indian ADRs closed mixed; Tata Motors was up by 0.38%, Dr Reddy’s was up 0.27% and ICICI Bank was up 0.11%. On the other hand, HDFC Bank was down by 1.03% and Wipro was down 0.08%.

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US markets closed higher on Yellen testimony, strong economic data

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