U.S. equities moved higher again on Friday — the eighth gain in nine days — as investors continue to warm to the idea of no interest rate hikes from the Federal Reserve this year. The session was relatively quiet, with a number of Fed officials filling the headlines with speech excerpts.
Overall, folks are waiting for the Q3 earnings season to heat up next week before placing the big bets.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 gained 0.1%, the Nasdaq Composite gained 0.4%, and the Rfussell 2000 gained 0.2%. Gold gained more than 1%, crude oil added 0.2% to close at $49.51 a barrel, and the U.S. dollar lost 0.5%.
Technology stocks led the way with a 0.5% gain while energy stocks were the laggards, down 0.7%. Alcoa (AA) lost 6.8% after reporting weaker-than-expected results on Thursday night. Gap (GPS) lost 5.3% after reporting inline September comp-store sales, but results from Banana Republic and Old Navy disappointed.
United Airlines (UAL) gained 6.6% after increasing Q3 margin guidance to 16-17% from 13.5-15.5% previously.
The upward momentum continued in the wake of the Thursday afternoon release of the September Federal Reserve meeting minutes, which reinforced the notion that policymakers remain concerned about a number of factors — including too-low inflation, global financial turbulence and the ongoing drag on net exports and corporate earnings from a strong dollar — suggesting rate liftoff isn’t likely to happen this year.
Currently, futures market odds put the first rate hike in March 2016.
In comments today, Chicago Fed President Charles Evans said he expects the Fed policy rate to be below 1% in late 2016 and expects inflation below 2% by the end of 2018. He added that headwinds on inflation were unlikely to subside before the middle of 2016, adding further evidence to the early to mid-2016 rate liftoff window timing.
Richmond Fed President Jeffrey Lacker, a policy hawk, talked up the strength of the labor market and the growing risk of continuing with monetary policy at full stimulus. He added that inflation could quickly return to the Fed’s 2% target once the impact from lower energy prices and raw material input prices fade.
And finally, Fed Vice Chairman Stanley Fischer reminded everyone the Summary of Economic Projections following the September Fed policy meeting showed 13 of 17 officials forecast a rate hike in 2015; although, it must be said, this came before the release of a very soft September payroll report last Friday.
Fischer added that the Fed is paying increasing attention to international events (read: the situation in China) and while their mandate is based on U.S. economic performance, they don’t want to do damage to the global economy.
Add it all up, and it looks like the Fed is going to wait until the New Year before tightening policy — clearing the way for an epic end-of-year Santa Claus rally.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
