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Stocks eke out another record close as Fed maps next move

CNBC logo CNBC 9/20/2017 Thomas Franck

Stocks ended mostly higher Wednesday as traders assessed the Federal Reserve's latest decision on reducing its balance sheet in October.

As markets expected, the U.S. central bank announced it will begin rolling off its $4.5 trillion balance sheet, most of which consists of the Treasurys and mortgage-backed securities it acquired under a program known as quantitative easing.

At the same time, the Fed did not raise its benchmark interest rate from its current 1 percent to 1.25 percent target.

The Dow gained 41 points, recovering from earlier losses to set another record. The S&P 500 added 0.06 percent, also eking out an all-time closing high. The Nasdaq lagged, shedding 0.08 percent. 

Before the announcement, the Fed was widely expected to announce the unwinding of its $4.5 trillion balance sheet starting in October.

"I think the Fed has done a really good job in the past months of letting people know what they're going to do," said Bruce Bittles, chief investment strategist at Baird. "The question mark is in whether there will be any hints about the federal funds rate."

The highly anticipated rollback signals the central bank's effort to reverse the asset purchases it made as part of the extraordinary quantitative easing program it created to save the economy during and after the financial crisis.

Though investors have been largely skeptical of a third rate hike until recently, price data may give the Fed the support it needs. The Labor Department reported that consumer prices rose 0.4 percent last month, making August's gain the largest in seven months and lifting the year-over-year increase in the CPI to 1.9 percent.

Robert Tipp, an chief investment strategist at PGIM Fixed Income, echoed Bittles' sentiments.

"It's a notable day in the sense that there's uncertainty around December," explained Tipp. "They're going to give very explicit guidance right now via the dot plot."

The so-called dot plot charts where individual Fed members expect interest rates to be over the next few years. Policymakers update the chart every quarter.

According to the CME Group's FedWatch tool, investors now see a 56 percent chance of a rate increase by the end of December.

Meanwhile, the yield on the 10-year Treasury note fell to 2.23 percent. While yields have fallen over the past six months, they've posted a modest rebound in September. Treasury yields move inversely to their prices.

The U.S. Dollar Index, which measures the greenback against a basket of other global currencies, fell 0.1 percent.

Shares of FedEx rose about 3 percent after trading sharply lower in the premarket. The shipping giant said Tuesday it now expects earnings between $11.05 and $11.85 per share, below its previous projection between $12 and $12.80 per share.

The company said it adjusted its outlook to account for the impact of the TNT Express cyberattack, which FedEx said "significantly affected" the worldwide operations of the segment.

"The FedEx miss doesn't change long-term outlook," wrote Stifel analyst David Ross in Wednesday's note to clients. "[The cyberattack] did not impact any legacy FedEx operations, and the company will have the old TNT operations back to normal in the next couple of weeks."

General Mills was the worst performer in the S&P 500, falling more than 5 percent after the company posted weaker-than-expected profit. Net income fell to $404.7 million while the company earned 71 cents per share, short of Reuters expectations of 76 cents per share.

President Donald Trump tried to rally members of the United Nations to confront threats from North Korea on Tuesday. In a speech to the U.N. General Assembly, Trump said "North Korea's reckless pursuit of nuclear weapons and ballistic missiles threatens the entire world with unthinkable loss of human life."

Though the relationship between the United States and North Korea has been stressed recently, Wall Street has been largely unconcerned and does not foresee armed conflict. Last week, the isolated Asian nation launched a missile that flew over Japan before ultimately landing in the sea.

The National Association of Realtors said on Wednesday existing home sales decreased 1.7 percent to a seasonally adjusted annual rate of 5.35 million units last month. That was the lowest level since August 2016.


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