Stocks continued their 2018 rally on Wednesday, pushing to new highs despite the release of the latest Federal Reserve meeting minutes pointing to some policy confusion by officials. Some were worried about low inflation, while others worried about overly easy policy raising financial stability risks (that is, creating price bubbles).
Other news included reports of a processor design flaw on Intel Corporation (NASDAQ:INTC) chips, something the company dismissed late in the day as an industry-wide problem.
In the end, the Dow Jones Industrial Average gained 0.4%, the S&P 500 gained 0.6%, the Nasdaq Composite gained 0.8% and the Russell 2000 gained 0.2%. Treasury bonds rallied, the dollar snapped a seven-day losing streak, gold gained 0.2% and crude oil added 2.1% amid a focus on protests in Iran to hit a 2.5-year high.
Breadth was positive, with advancers outpacing decliners by a 1.5 to 1 ratio. Energy stocks led the way with a 1.5% gain, while telecom stocks were the laggards, down 2.2% overall. Advanced Micro Devices, Inc. (NASDAQ:AMD) gained 5.2% on reports of that INTC processor bug. International Business Machines Corp. (NYSE:IBM) added 2.8% on an upgrade from analysts at RBC on valuation tailwinds.
On the downside, Harley-Davidson Inc (NYSE:HOG) fell 3.8% on an downgrade at Longbow Research citing weak channel checks.
Turning to the Fed meeting minutes — closely watched ahead of the next rate setting meeting starting on Jan. 31 — they featured significant consternation about whether to slow or speed up the current pace of rate hikes. For now, with consumer price inflation still rather tepid, the policy doves carry the day.
But that’s set to change, with a makeup of voters turning hawkish in 2018, chairman Yellen on her way out and a rise in producer price inflation, a tightening labor market and a weaker dollar all set to push prices higher. Add in the recent strength in crude oil, driven by protests in Iran and the falling greenback and 2018 is set to break the “Goldilocks” conditions markets have enjoyed according to Societe Generale.
Fed officials also dismissed the flattening of the Treasury yield curve — a possible pre-recession signal — as a normal condition for this point in the business cycle.
The CBOE Volatility Index tested to an 8 handle for only the sixth time in its history, revealing just how calm conditions are. Before 2017, the VIX only fell this low one other time: In 1993.
Cryptocurrencies continued their roaring performance as well, with Ripple up 30% as the overall crypto market capitalization pushes to $726 billion; up from less than $200 billion back in October.
But things could soon be set to change according to Societe Generale, which doubled down on their bearish 2018 outlook today by highlighting the risks of higher inflation resulting in faster central bank policy tightening and further dollar weakening — which would result in a self-feeding dynamic via higher energy and import prices.
Check out Serge Berger’s Trade of the Day for Jan. 4.
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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