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Stock Market News for May 25, 2017

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Benchmarks closed in the green on Wednesday following the release of minutes from the Federal Reserve’s meeting held on 2-3 May. The minutes assured investors that the central bank has opted for a slow and gradual process of unwinding of its massive balance sheet. Moreover, Fed officials also signaled that the central bank may raise its key interest rates in its next meeting on June 13-14.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.

The Dow Jones Industrial Average (DJI) gained 0.4% to close at 21,012.42. The S&P 500 rose 0.3% to a record close at 2,404.39. Both the Dow and the S&P 500 posted gains for a fifth consecutive session on Wednesday, marking their longest winning streak since February. The tech-laden Nasdaq Composite Index advanced 0.4% to close at 6,163.02. A total of around 6.1 billion shares were traded on Wednesday, lower than the last 20-session average of 6.8 billion shares. The fear-gauge CBOE Volatility Index (VIX) traded near 9.89. Advancers outnumbered declining stocks on the NYSE by a 1.30 to 1 ratio.   

Unwinding of Fed’s Balance Sheet

As per minutes released from the Federal Reserve’s meeting held on 2-3 May, the central bank officials agreed to trim down its $4.5 trillion balance sheet. The Fed holds a massive portfolio of government debt, generated by purchasing treasury and mortgage-backed securities in the years after the financial crisis. According to minutes released, the central bank hinted that it may start unwinding the balance sheet later this year.

So far, the central bank has been reinvesting the proceeds it receives from maturing securities in more bonds. The central bank called for gradual reduction in the amount of bonds it would be purchasing each month. Fed is expected to set cap limits on the amount of securities it will agree to roll off each month without reinvesting. According to minutes, caps would be set at lower levels in an initial stage and then would be raised every three months.

Interest Rates Hike

In its minutes, the Fed indicated that it may raise interest rates in its next meeting in June. The minutes also revealed that most of the Fed policymakers agreed that it would “soon” be time to hike interest rates.

As per CME Group's FedWatch tool, market expectations for a June rate hike are now at 83.1%. Strong rate hike prospects and Fed’s proposal to unwind its balance sheet boosted investor sentiment.

The broader Materials Select Sector SPDR (XLB) advanced 0.7%, emerging as the best performing sector of S&P 500. Some of the key holdings of the materials sector in the S&P 500 including Praxair Inc (PX - Free Report) and Ecolab Inc (ECL - Free Report) gained 1.8% and 1% respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Economic Data

As per the National Association of Realtors, existing-home sales declined 2.3% in April to a seasonally adjusted annual rate of 5.57 million, lagging the consensus estimate of 5.65 million. The sales figure recorded an increase of 1.6% year over year.

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