The Federal Open Market Committee (FOMC) released a statement two hours before Wednesday’s closing bell, and after an initial trading blip to the downside, market indexes overall have rallied on the news, and through most of Chairman Powell’s presser a half-hour later. After the conclusion of its two-day meeting, the FOMC considered the coronavirus pandemic continuing to be a “considerable risk to the economic market,” and has declared its intent to keep interest rates unchanged at 0.00-0.25% — from now “at least” through year 2022.
That’s 2 1/2 years of near-zero interest rates from this point forward, even as the Fed expects above-trend economic growth in 2021 and ’22. In addition, the FOMC will keep bond purchasing policy in place, in order to keep volatility low — an unexpected additional perk to an economy looking to climb out of a deep, deep hole. After trillions of dollars in stimulus from both the Fed and Congress to address the economic crisis — with potentially more to come — it boggles the mind what our balance sheet might look like in a couple years.
Fed Chair Powell said the FOMC would be retaining “broad and forceful actions” in assisting the revival of the economy, saying the Fed is ”committed to using the full range of tools to support the economy.” Acknowledging that economic improvement has occurred since the Fed took emergency steps to backstop the U.S. economy with cheap capital and absorbing bond paper back in March, the ruling body still expects -6.5% GDP for full-year 2020 — the lowest-ever such projection, which Powell called the “most severe on record.”
Unemployment is now projected to be sub-10% for Q4 of this year, but not before. This amounts to a continued overall economic hardship for millions of Americans going forward, despite an historically robust labor market over the previous several years. Powell also mentioned that, in the May non-farm payroll report last week from the Bureau of Labor Statistics, 4.7 million Americans listed themselves “employed but absent” from their jobs, when in truth they too should have been counted as unemployed. This would have taken the headline jobs number last month to -2.2 million, not +2.5 million.
The dollar index dropped in the wake of this report, as far as 60 basis points. It has since halved that loss, but is one area where zero interest rates will not have a pronounced benefit. Banks also look to be selling off a bit here, with JPMorgan (JPM - Free Report) -3%, Goldman Sachs (GS - Free Report) -1.8% and PNC Financial (PNC - Free Report) -5%. And Treasury yields had initially sold off to varying degrees after the Fed report. Stock indexes overall were mixed, with the Dow pulling back a full 1% by the closing bell and the S&P 500 down 0.53%.
The Nasdaq, on the other hand, has posted its third all-time high close in as many days, crossing past 10,000 points at the end of the regular session for the first time ever. The tech-heavy index — led by fresh all-time highs at Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) and Tesla (TSLA - Free Report) — finished up 0.67% on the day.
Finally, Dow and Nasdaq component Cisco Systems (CSCO - Free Report) reported fiscal Q3 earnings results after Wednesday’s close. Results were better than expected on the bottom line by 5 cents to 79 cents per share, while quarterly sales came in right about as anticipated at $12.0 billion, down roughly 10% year over year. Guidance for Q4 went a little soft, to a 72-74 cent range (the Zacks consensus was for 75 cents), with revenues expected to decline year over year between 8.5-11.5%.
Cisco shares are selling off slightly in late trading, -0.44%, and are down just slightly year-to-date. The tech giant was trading roughly $10 per share higher a year ago. That said, the company has not missed earnings estimates since our recalibration of stock-based compensation, going back to calendar Q3 2106.
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