US markets closed mostly higher; Fed holds rates steady

02 Nov 2017 Evaluate

The US markets closed mostly higher on Wednesday, with the Dow and the S&P 500 ending near record levels after the Federal Reserve stood pat on interest rates but referred to the US economy in positive terms. The Federal Reserve upgraded its assessment of the health of the economy, holding the door open for an interest-rate hike at its next meeting in December. In a statement after a two-day meeting, policy makers said economic activity has been rising at a solid rate. That’s stronger than the September language describing growth as moderate. As expected, the Fed decided to leave rates unchanged in a range of 1% to 1.25%. Policy makers had signaled ahead of the meeting there was no chance of a rate hike this month. Since the summer, they have set December as the next meeting for a possible move. Twelve out of 16 Fed officials penciled in a December rate hike in the so-called dot-plot, a projection of where Fed members see rates in the future, released six weeks ago. The Fed didn’t update those projections at this meeting. A dovish minority on the central bank has argued the Fed should be cautious about hiking rates with inflation remaining so low. Fed Chairwoman Janet Yellen has said the strength of the economy justified more gradual rate hikes despite the low inflation readings. With the monetary policy update out of the way, attention will now focus on who will become the next Fed chair. President Donald Trump is expected to name his pick as early as Thursday, with all indications so far pointing to current Fed Governor Jerome Powell as the choice. Separately, investors continue to digest the latest corporate earnings. This season has been strong thus far, with 75% of the S&P companies that have reported beating analyst estimates, according to FactSet data.

On the economy front, private-sector employment bounced back in October as employers added 235,000 jobs. The gain in October ADP was higher than the 110,000 gain in September. Small private-sector business employment rebounded to show a gain of 79,000 jobs in October, medium-size businesses added 66,000 and large businesses added 90,000. Most of those gains were in the service sector - 150,000 jobs added there, compared with 85,000 for goods producers. There was a resurgence in construction jobs. Separately, construction outlays rose in September, led by a surge in government spending. Spending ran at a seasonally adjusted annual $1.22 billion rate. Spending increased 0.3% during the month, and stood 2% higher than a year ago. During the first nine months of the year, spending has amounted to $917 billion, 4.3% higher than the same period last year. For the second month in a row, public works projects drove the spending increase. Public-sector outlays were 2.6% higher than in August, while private-sector spending was 0.4% lower. Compared to a year ago, however, the pace of total public construction spending is 1.6% lower, while overall private spending is 3.1% higher.

On the other hand, the ISM manufacturing index fell to 58.7% in October, a month after hitting a 13-year high of 60.8%. Sixteen of the 18 industries tracked by ISM reported growth. The index for new orders dipped 1.2 points to 63.4%, the Institute for Supply Management said. Production also slipped 1.2 points to 61%. A measure of employment fell 0.5 points to 59.8%.

The Dow Jones Industrial Average added 57.77 points or 0.25 percent to 23,435.01, the S&P 500 edged higher by 4.1 points or 0.16 percent to 2,579.36, while the Nasdaq dropped 11.136 points or 0.17 percent to 6,716.53.

US markets closed mostly higher; Fed holds rates steady

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