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Stock market news: December 11, 2019

Emily McCormick

U.S. stocks were higher and Treasury yields declined Wednesday following Federal Reserve’s final monetary policy decision of the year. In this, central bank officials decided to keep key interest rates at current levels and telegraphed rates would remain on hold through next year.

The Dow, which had been slightly red earlier in the session, turned positive in the minutes after the Fed’s announcement. Gains in the S&P 500 were led by the Materials and Information Technology sectors, while Real Estate and Financials lagged.

Here’s where markets settled Wednesday at the end of regular equity trading:

  • S&P 500 (^GSPC): +0.29%, or 9.11 points

  • Dow (^DJI): +0.11%, or 29.58 points

  • Nasdaq (^IXIC): +0.44%, or 37.87 points

  • 10-year Treasury yield (^TNX): -3.3 bps to 1.798%

  • Gold (GC=F): +0.76% to $1,473.70 per ounce

The Federal Open Market Committee released its final monetary policy of 2019 at 2:00 p.m. ET, announcing benchmark interest rates would remain unchanged at a band of between 1.50% and 1.75%. This outcome had been widely expected by economists and market participants, who had priced in an unchanged outcome with near certainty ahead of Wednesday’s announcement, according to CME Group data.

In its monetary policy statement, the FOMC removed language referring to “uncertainties” over the economic outlook. Instead, members said they deemed that “the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.”

Each voting member of the FOMC voted in favor of the monetary policy decision, in a return to unanimity after each of the decisions since June produced at least one dissent.

“What’s interesting is that we’re used to Fed officials not always seeing eye to eye on monetary policy but today is decidedly unanimous,” Mike Loewengart, vice president of investment strategy for E-Trade Financial, wrote in an email. “The Fed and trade have been consistent market movers in 2019, but heading into 2020 there truly may only be one—trade, which is a big question mark especially as we embark on an election year.”

In the six weeks since the Federal Reserve’s October meeting, U.S. economic data underscored a rebound in the manufacturing sector and ongoing resilience in the labor market and consumer spending. Durable goods orders returned to growth and IHS Markit’s manufacturing purchasing managers’ index showed a shallower contraction in the manufacturing sector.

Meanwhile, the unemployment rate returned to a 50-year low in November while inflationary pressures remained muted, adding to the Fed’s case for keeping rates at current levels for the time being.

In their updated economic projections, central bank officials said they expect 2020 will end with a 3.5% unemployment rate, down from their 3.7% prediction from September. And for the long-run, the Fed expected the natural rate of unemployment for the U.S. economy will be 4.1%, down from a 4.2% expectation in September.

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Traders work, as a screen shows Federal Reserve Chairman Jerome Powell's news conference after the U.S. Federal Reserve interest rates announcement, on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 30, 2019. REUTERS/Brendan McDermid
Traders work, as a screen shows Federal Reserve Chairman Jerome Powell's news conference after the U.S. Federal Reserve interest rates announcement, on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 30, 2019. REUTERS/Brendan McDermid

With economists having been all but certain that the Wednesday meeting would produce no change to key interest rates, their focus instead turned to the outlook. The Fed released an updated Summary of Economic Projections (SEP), which included a “dot plot” indicating where each member of the FOMC believes interest rates will be over the next several years.

FOMC members telegraphed that rates would likely remain on hold through 2020, with the majority of FOMC members’ dots cast in a range of between 1.50% and 1.75%. Thirteen members anticipated no change to rates in 2020, while four anticipated an increase of 25 basis points.

The median dot also showed that one quarter-point rate hike would take place by the end of 2021, followed by another increase to rates in 2022.

Three rate cuts brought benchmark interest rates down by 75 basis points total in 2019, even after the Federal Reserve’s December 2018 dot plots predicted that interest rates would be between 2.75-3.00% this year.

ECONOMY: Consumer prices rise slightly more than expected in November

The Department of Labor’s headline consumer price index (CPI) released Wednesday morning registered a greater than expected increase in November as shelter price gains accelerated and prices for energy, medical care, recreation and food all rose during the month.

The broad CPI increased 0.3% month over month on a seasonally adjusted basis, higher than the 0.2% gain increase expected. In October, CPI rose 0.4% on a monthly basis. Excluding food and energy prices, the CPI rose 0.2% month over month, matching the Octobers rate and consensus expectations. This metric, which strips out more volatile categories, is seen by many economists as a better gauge of underlying price trends.

Headline CPI rose 2.1% year over year, coming in just ahead of the 2.0% expected and picking up from October’s 1.8% annual rise. CPI excluding food and energy prices rose 2.3% year on year, matching expectations and October’s pace.

“A rise in energy prices pushed headline CPI inflation up to a one-year high last month, but the stability of core inflation suggests that underlying price pressures remain subdued,” Andrew Hunter, senior U.S. economist for Capital Economics, said in an email Wednesday morning.

Splitting up has been the predominant trend of the past 10 years.
Splitting up has been the predominant trend of the past 10 years.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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