Equities climbed to new highs this week after the Federal Reserve declined to combat rising inflation. Although the Federal Reserve admitted inflation was taking longer to become transitory, Chairman Jerome Powell said the central bank is committed to long-term inflation and not short-term price fluctuations. The Federal Reserve did announce the tapering of quantitative easing will begin this month though, with the Fed buying $105 billion in treasury and mortgage bonds, down from $120 billion. Barring no changes, the taper will complete in June.
The small-cap Russell 2000 Index advanced 6.09 percent, followed by the Nasdaq up 3.05 percent, the S&P 500 Index 2.00 percent and the Dow Jones Industrial Average 1.42 percent. Gold gained 1.91 percent on the week, with all the gains coming after the Federal Reserve meeting. iShares 20+ Year Treasury (TLT) climbed 1.18 percent.
The October employment report was strong across the board. Wage growth met expectations of 0.4 percent, unemployment was 4.6 percent, slightly better than the consensus forecast. Net new jobs blew away forecasts at 531,000 along with upward revisions of more than 100,000 for the prior two months. Removing the statistical adjustments in the government data, there were actually 1.6 million new jobs. All sectors showed substantial gains, led by restaurants, manufacturing and professional services. The numbers are particularly strong considering vaccine mandates in some industries. Healthcare, for example, lags other sectors with nearly 500,000 fewer jobs than before the pandemic. Warehouse and transportation employment has already exceeded their pre-pandemic levels.
The ISM services PMI hit a new all-time high at 66.7 percent.
The Atlanta Federal Reserve’s GDP Now model upped its fourth quarter growth estimate to 8.5 percent in light of the positive data out this week.
Crude oil declined this week, with West Texas Intermediate crude closing at $81.27 per barrel. This will be an important commodity in the coming weeks because should it resume its ascent, the market could quickly determine the Federal Reserve made a policy error in its dovish tone.
The 10-year treasury bond yield plunged to 1.45 percent on Friday, down from near 1.70 percent a little more than 2 weeks ago.