Stocks moved higher on Wednesday, even after a reduction in monetary stimulus measures was announced by the Federal Reserve. The Fed said it was certain the economy was strong enough so that it could effect a modest taper to its stimulus program. The Dow and S&P 500 also finished at new record highs on the day. All the sectors in the S&P 500 industry groups ended in the green, with the health care sector leading the pack.
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The Dow Jones Industrial Average (DJI) gained about 1.8% to close the day at 16,167.97 exceeding its previous record high. The S&P 500 rose 1.7% to finish yesterday’s trading session at 1,810.65, also a record high. The tech-laden Nasdaq Composite Index increased 1.2% to end at 4,070.06. The fear-gauge CBOE Volatility Index (VIX) plunged down 14.9% to settle at 13.80. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 2.3 billion shares. Advancing stocks outnumbered the decliners. For 75% shares that advanced, only 22% declined.
Benchmarks marched higher on the day, with the Dow and S&P 500 setting all-time closing records, even as the Federal Reserve announced it was beginning to taper its monetary stimulus measures. The taper decision surprised a few market watchers and other active participants. However, the decision to some extent provided signs of a stronger U.S. economy.
The central bank said a reduction of $10 billion will be initiated, bringing the stimulus to $75 billion a month from January, 2014. At the same time, the Fed also indicated that the key interest rate would continue to remain at a record low longer than what was promised previously. The central bank said it “likely will be appropriate” to preserve overnight rates close to nil “well past the time” even if the unemployment rate drops below 6.5%.
Speaking at a news conference, Federal Reserve Chairman Ben Bernanke said the central bank would introduce similar steps in its upcoming Federal Open Market Committee meetings in the future as well. Bernanke said such reductions would continue if economic data continued to remain positive. He said Fed would continue to main low borrowing rates in order to increase spending and propel growth. At the same time, such moves were aimed at pushing up the low levels of inflation, he added.
According to the US Department of Commerce, housing starts for the month of November came in at 1,091,000, 22.7% above the revised October estimate of 889,000. This is the highest level recorded in the past six years and considerably more than the consensus estimate of 959,000. The figure is also 29.6% above the November 2012 rate of 842,000.
Building permits were at a seasonally adjusted annual rate of 1,007,000, 3.1% below the revised October rate of 1,039,000. However, they are also 7.9% above the November 2012 estimate of 933,000. Privately-owned housing completions in November were at a seasonally adjusted annual rate of 823,000. This is 0.1% below the revised October estimate of 824,000. However, the figure is 21.6% above the November 2012 rate of 677,000.
The health care sector was the maximum gainer among the S&P 500 industry groups. The Health Care SPDR (XLV) gained 2.5%. Stocks such as Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Merck & Co., Inc. (NYSE:MRK), Gilead Sciences, Inc. (NASDAQ:GILD), and Bristol-Myers Squibb Co (NYSE:BMY) gained 2.2%, 2.1%, 2.1%, 5.0%, and 2.9%, respectively.