Federal Reserve Chair Jerome Powell and the rest of the U.S. central bank deftly walked the expectations tightrope in their post-FOMC meeting commentary Wednesday – at least, that's what the afternoon jump in stocks indicated.
The Fed upgraded its expectations for 2021 GDP growth to 6.5%, from 4.2% back in December – while also lifting its projections for core inflation, which it now sees hitting 2.2% (up from its previous forecast of 1.8%).
But the Fed's interest-rate policy remained unchanged, and while a few members signaled that interest-rate hikes might come sooner than they believed a few months ago, the mean "dot plot" still indicates no changes in the benchmark rate until 2023.
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"As expected, the Fed made no changes to the Fed funds rate and the bond buying program. That was the easy part," says Anu Gaggar, senior global investment analyst for Commonwealth Financial Network. "Many on the Street were looking for a hawkish Fed, in so far as dots at least. With the 2023 median plot still hugging the floor, stocks and bonds are rising again,"
"This is like a Goldilocks market – strong economic growth, moderately higher inflation, rebounding earnings, and very easy monetary conditions."
"The Fed gave the stock market what it wanted to hear," adds Ryan Detrick, chief market strategist for LPL Financial. "The economy is quickly improving, yet they don't plan on removing the punchbowl anytime soon and rates will likely stay low for the intermediate future."
All of the major indices flipped from earlier-day losses to gains by the close. The Dow Jones Industrial Average eclipsed 33,000 for the first time, climbing 0.6% to a record 33,015 thanks to moves higher Dow (DOW, +4.5%), Boeing (BA, +3.3%) and Caterpillar (CAT, +3.2%).
The S&P 500 also set a new high, up 0.3% to 3,974. And the Nasdaq Composite improved by 0.4% to 13,525.
Other action in the stock market today:
- The Russell 2000 was tops among the major indices, gaining 0.7% to 2,336.
- U.S. crude oil futures declined for a fourth consecutive session, off 0.3% to $64.60 per barrel.
- Gold futures cheered the Fed's announcement, gaining 0.6% to $1,741.00.
- Bitcoin prices rebounded with the market, jumping 3.6% to $57,756. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
Is "Infrastructure Week" Nigh?
We mentioned yesterday that the market's biggest risk is shifting from COVID-19 to inflation. But what about its next driver? President Joe Biden's $1.9 trillion stimulus package is technically in the market's rear-view mirror, after all, even if stimulus checks are just starting to go out.
There are certainly plays to be made in the economic recovery and the reflation trade, but many analysts are increasingly focused on the possibility of a long-awaited infrastructure bill.
"Expect lawmakers to quickly turn to a recovery/infrastructure package with the goal of having a draft bill around late spring," Raymond James analysts wrote earlier this month. "President Biden held another bipartisan meeting with lawmakers ... and House Democrats introduced new climate legislation, portions of which (such as hundreds of billions of dollars for clean energy transitions and a national green bank) are likely to be key parts of Biden's infrastructure plan."
Pay special attention to that last part. While an initiative targeting things such as America's aging roads and bridges would surely help traditional materials and industrial plays, your world of infrastructure plays to target might need to include green-energy and even telecommunications-focused plays.
Read on as we explore 12 of the best infrastructure stocks to benefit from a bipartisan infrastructure plan from Washington, including conventional and outside-the-box selections alike.
Kyle Woodley was long BA as of this writing.
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