Stock Market Today: Stocks Pop After Fed Speeds Taper Timeline
The bulls took charge Wednesday after the Federal Reserve said it would taper its asset purchases by March and signaled three rate hikes in 2022.
The Federal Reserve took a slightly more hawkish tone than anticipated at its latest Federal Open Market Committee meeting, but that was met with more cheers than jeers Wednesday as the major indexes closed up.
As was largely expected, the central bank announced that it would quicken its drawdown of bond buying, expecting to complete its tapering by March rather than the previously stated June finish line. The surprise was what the Fed signaled about rate hikes to come.
"The FOMC 'dot plot' projection now shows the median participant expecting three rate hikes in 2022, followed by three more in 2023 and another two in 2024," says Jason Pride, chief investment officer of private wealth at investment management firm Glenmede. "That pace is relatively in line with market expectations via Fed funds futures, if not a touch more aggressive than what was being priced in pre-release."
Clearly, the Fed is recognizing the threat of rising prices with a longer tail, updating its expectations for 2022 inflation, to a 2.6% growth rate from 2.2% previously. "Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation," the FOMC said in a statement.
"Last month Fed Chairman Jerome Powell did an about-face on inflation," says Paul Camhi, vice president and senior financial advisor at The Wealth Alliance. "After calling it transitory for many months he shifted gears and said it was not transitory. He was clearly telegraphing a change in outlook on inflation."
Lawrence Gillum, fixed income strategist for LPL Financial, does note that investors shouldn't see three rate hikes as set in stone.
"With three open seats, we still don't know what the Committee will look like next year, so these projections could change in three months," he says.
Nonetheless, the Fed's messaging triggered a strong red-to-green response by the major indexes. The Nasdaq Composite led with a 2.2% improvement to 15,565, while the S&P 500 (+1.6% to 4,709) and Dow Jones Industrial Average (+1.1% to 35,927) also finished well into positive territory.
Technology (+2.6%) and defensive sectors such as healthcare (+2.1%) and utilities (+1.6%) gained the most ground, while more cyclical areas such as energy (-0.5%) and materials (+0.2%) brought up the rear.
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said the sector response "indicates some concern about the future path of the economy."
Other news in the stock market today:
- The small-cap Russell 2000 jumped 1.7% to 2,195.
- U.S. crude oil futures swung higher after the Fed announcement too, gaining 0.2% to settle at $70.87 per barrel.
- Gold futures gave back 0.4% to finish at $1,764.50 an ounce.
- Bitcoin rallied along with stocks, gaining 3.0% to $49,232.89. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Roku (ROKU) was a notable decliner today, sliding 8.0% after the U.S. International Trade Commission lost a patent infringement case brought forth by remote control maker Universal Electronics (UEIC, +8.3%). Per the ruling, Roku is no longer allowed to import TVs, set top boxes, streaming devices, remote controls and sound bars that infringe on UEIC's patents. The order will become final on Jan. 9, though President Joe Biden is able to review it – and potentially overturn it – ahead of that date.
- Eli Lilly (LLY) jumped 10.4% after the drug manufacturer raised its revenue guidance for fiscal 2021. According to LLY, it now expects sales to arrive between $28 billion and $28.3 billion compared to its previous estimate of $27.2 billion to $27.6 billion thanks to additional revenue from its COVID-19 antibody therapy. The company also sees fiscal 2022 revenue to land between $27.8 billion and $28.3 billion on solid volume growth across several of its treatments, including diabetes drugs Trulicity and Jardiance, breast cancer treatment Verzenio and stomach cancer therapy Cyramza.
Could 2022 Be Kinder to Communications Stocks?
But some strategists see a bull year ahead for comms firms:
"In our base-case scenario, we expect slowing growth and peaking inflation to support moderate outperformance of defensive sectors with quality characteristics and higher duration," say Invesco strategists in their 2022 investing outlook. That includes the likes of healthcare and consumer staples, but also communication services, which Invesco views positively heading into the new year.
So, which stocks appear poised to nab an outsized share of next year's opportunity? We continue our 2022 outlook with an exploration of the communication services sector, including 12 picks that stand above the rest.