S&P 500 ekes out record close after Fed minutes show no hurry to tighten monetary policy

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What drove the market?

Stocks were listless as the Federal Reserve released its March policy meeting minutes, which pointed to continued support for financial markets until the economy has more fully healed from the pandemic.

Despite an improving U.S. economy and labor market, Fed officials said they expect it will be “some time” before any tapering of the central bank’s monthly asset purchases program takes place, or before benchmark interest rates are lifted from today’s near zero levels, according to Fed minutes released Wednesday.

“I don’t think you’re going to see any indication of changes this year in terms of the Fed’s buying patterns and support for the market,” said Eric Schiffer, chief executive officer of the Patriarch Organization, adding that with fiscal support from Washington, “the market likely still has room to run.”

“April is a good month for markets historically, and as the earnings season unfolds, I think you’ll see a greater level of increases across the board in terms of future earnings projections,” Schiffer said.

Optimism about the outlook for the business climate has been growing as more Americans get vaccine doses and as Congress aims to provide additional spending measures to help facilitate a fuller recovery from the coronavirus pandemic. The CDC’s vaccine tracker shows that 32.6% of the U.S. population have had at least one vaccine dose and President Joe Biden on Tuesday announced that the vaccine program would be open to all American adults by April 19, ahead of an earlier timetable of May 1.

So far this year, investors have favored assets that do better at the start of the economic cycle, marking a so-called value rotation.

“We haven’t seen this kind of value rally since 2016,” said Diane Jaffee, senior portfolio manager at TCW. “Just like there are super growth cycles, I do believe there are super value cycles. It didn’t come to pass in 2016 but I think we are in one now.”

“I think investors are starting to realized that there will be a short-term rise in inflation, but it’s not going to be sustained,” Jaffee told MarketWatch. “Still, if the yield curve turns more positive or the 10-year yield rises, but it’s because of economic growth, that’s a good thing. That’s what we’ve been waiting for these past 10 years!”

While most investors are aware that a big boost in infrastructure spending will help sectors like materials XLB, -1.72% and industrials XLI, -0.46%, Jaffee also thinks banks XLI, -0.46% have a lot of things going in their favor, including some technical factors that will boost earnings, and some regulatory relief.

Andrew Slimmon, lead senior portfolio manager at Morgan Stanley Investment Management, thinks it’s never been a better time to invest in value stocks, given the high level of investor distrust of the Fed’s commitment to keeping monetary policy supportive.

“The Fed seriously isn’t changing policy any time soon,” Slimmon wrote in emailed commentary. “Janet Yellen even admits that the Fed made policy error by adjusting policy too quickly post-recession. Yet, investors continue to ignore her and Powell’s statements.”

Some skeptics still expect the Fed to spell out plans to taper its bond-buying program as early as the end of this year.

A rise in bond yields has abated somewhat, with the 10-year Treasury note yield TMUBMUSD10Y, 1.674% at around 1.65% Wednesday from 1.72% on Friday. The retreat in benchmarks bond yields has helped to foster some appetite for technology stocks, which benefit from a low interest rate regime.

Fed Governor Lael Brainard on Wednesday said the outlook for the economy has notably brightened, while also pointing to recent signs of “disorderly conditions” in the Treasury market that the Fed has been closely monitoring.

U.S. consumer borrowing also picked up in February and households started to use their credit cards again, according to Federal Reserve data released Wednesday.

Meanwhile, JPMorgan Chase & Co. JPM Chairman and CEO Jamie Dimon published his annual letter to shareholders on Wednesday, and offered an upbeat view of the economy.

“I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom,” the executive wrote. “This boom could easily run into 2023 because all the spending could extend well into 2023.” 

Related: Yellen says Biden’s tax hikes will fund traditional and ‘modern’ infrastructure

Which companies were in focus?

• Walt Disney Company  DIS, -1.14% released more information on how visitors can book a visit to its reopening California theme parks and what they can expect in terms of attractions and dining later this month. Shares closed 1.1% lower.
• Target TGT, -0.48% announced a commitment to spend more than $2 billion with Black-owned businesses by the end of 2025. Shares ended 0.5% lower.
• XPO Logistics Inc. XPO, +0.96%  said Wednesday said it has more than 1,400 jobs available in North America, and plans to accelerate hiring to meet growing demand. Shares advacned 1%.
• LumiraDX Ltd., a point of care diagnostics testing company, is going public via a merger with special-purpose acquisition corporation, or SPAC, CA Healthcare Acquisition Corp. CAHCU, +5.11%,  in a deal with a pro forma enterprise value of about $5 billion. 
• Shares of MSC Industrial Direct Co. MSM, -5.45%  dropped 5.5% Wednesday after the metalworking and maintenance, repair and operations (MRO) company reported a fiscal second-quarter profit that topped expectations but sales that fell shy.
• AppLovin Corp., APP a maker of software for mobile app developers, set terms for its initial public offering on Wednesday, with plans to offer 25 million shares priced at $75 to $85 each. 
•  Coinbase Global Inc. COIN, +3.70% revealed late Tuesday preliminary first-quarter revenue that topped $1 billion, surpassing revenue for all of last year, and a quarterly profit that approached $1 billion. The crypto trading platform is expected to debut on equity markets next week and released preliminary results for the January-March period and guidance for the full year 2021.

How did other assets fare?

• The ICE U.S. Dollar Index DXY, +0.10%,  a measure of the currency against a basket of six major rivals, was up fractionally at 92.40.
• The yield on the 10-year Treasury note TMUBMUSD10Y, 1.674%  was down 3 basis point at 1.653% as traders digested the Fed minutes. Yields and bond prices move in opposite directions.
• Oil futures ended higher after a report showed supplies were lower, with the U.S. benchmark CL.1, +0.39%  up 44 cents, or 0.7%, to settle at $59.77 a barrel on the New York Mercantile Exchange.
• Gold futures closed lower, with the June contract GCM21, -0.26%  shedding $1.40, or nearly 0.1%, to settle at $1,741.60 an ounce on Comex.
• In Europe, the Stoxx 600 index SXXP, -0.22%  closed 0.2% lower, while London’s FTSE 100 UKX, +0.91% jumped 0.9%.
• In Asia, the Shanghai Composite SHCOMP finished 0.1% lower, Hong Kong’s Hang Seng HSI, -0.91% closed down 0.9%, while Japan’s Nikkei 225 NIK edged up 0.1%.

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Mark DeCambre contributed additional reporting