James Trescothick

With more than 20 years of experience in financial service industry, James is our Senior Global Strategist and the co-producer and presenter of easyMarkets educational videos. When he is not working on educational programs or preparing webinars, you can find him with the easyMarkets team giving seminars around the world.

Wall Street continued its record-setting run on Wednesday, although gains slowed compared with previous sessions, as investors dissected the Federal Reserve’s latest policy announcement.

After an uneventful day, the benchmark S&P 500 Index eked out minor gains in the final hour of trading, closing up 0.1% at 2,508.25. That was the index’s fourth consecutive record high.

Most S&P 500 sectors finished in positive territory, with energy, financials and industrials leading the rally.

The Dow Jones Industrial Average rose 0.2% to 22,412.58, its seventh straight record-setting close. Meanwhile, the technology-savvy Nasdaq Composite Index pared losses to close down 0.1% at 6,456.04.

A measure of implied volatility known as the CBOE VIX fell 3.9% to 9.78, its lowest in nearly two months. The VIX trades on a scale of 1-100, with 20 representing the historic mean.

Investors were in reflection mode after the Federal Reserve announced an October start for the “great unwind.” Beginning next month, the Fed will start to reduce its $4.5 trillion balance sheet by $10 billion a month. Policymakers also pointed to December as a likely target for an interest rate increase Rates were left unchanged at 1.25% on Wednesday.

The September policy announcement was accompanied by quarterly economic projections covering GDP, inflation and unemployment.  Officials upwardly revised their 2017 growth forecast to 2.4% from 2.2% in June. The growth projection held at 2.1% in 2018 but was revised higher to 2% in 2019.

The outlook on PCE inflation was left intact this year and downgraded slightly for 2018 to 1.9%.

The central bank’s hawkish tone triggered a sharp rally in the U.S. dollar, with the DXY dollar basket closing at one-week highs. The index shot up 0.8% on Wednesday to close at 92.55. DXY is up 1.3% from the multiyear low of 91.35 reached on 8 September.

The Federal Open Market Committee (FOMC) will hold its next policy meeting on 31 October, with the official rate statement coming the following afternoon. The likelihood of an interest rate increase on 1 November is extremely slim, according to the CME Group’s FedWatch tool. Chances rise to 71% in December, according to the same metric.

 

Mark DeCambre and Sara Sjolin (20 September 2017). “Dow, S&P 500 finish at records as Fed announces October start to ‘great unwind’.” Market Watch.

Federal Reserve (20 September 2017). Projection materials.

CME Group. FedWatch.

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