US stocks slip from record highs as investors mull weak retail-sales data ahead of Fed decision

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A trader blows bubble gum during the opening bell at the New York Stock Exchange (NYSE) on August 1, 2019, in New York City.

  • US stocks slipped from record highs as investors mulled the disappointing retail sales ahead of the FOMC’s two-day meeting.
  • The 10-year Treasury yield has hovered near 1.5% for most of the day.
  • Crude oil traded at the highest level since 2018, while lumber, gold, and copper slipped.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks slipped from record highs Tuesday as investors mulled the disappointing retail sales ahead of the Federal Open Market Committee’s two-day meeting.

Spending at US retailers for the month of May slumped for the first time since February as more economic restrictions were reversed and Americans settled into a new sense of normal.

US retail sales fell 1.3% in May, the Census Bureau. Economists surveyed by Bloomberg held a median estimate for a 0.7% decline. The decline places monthly sales at $620 billion and just below the record-high seen in April.

Meanwhile, investors continue to weigh inflationary pressures ahead of the FOMC decision due Wednesday. Most economists are anticipating that the central bank will leave its policy mostly unchanged. Investors will be focusing on tapering discussions, the latest economic projections, and inflation.

“Despite the ‘transitory’ message regarding inflation, some on the Committee must be twitching a little uncomfortably,” said Marcus Dewsnap, head of fixed income strategy at IGM, which is part of Informa Financial Intelligence.

Hard data so far hasn’t quite suggested the sort of second-quarter that will force economic growth to hit the Fed’s 2021 projection, Dewsnap added.

The 10-year Treasury yield hovered near 1.5% for most of the day.

In March, Fed officials saw consumer prices rising 2.4% in the fourth quarter of 2021 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run.

Here’s where US indexes stood at the 4:00 p.m. ET close on Tuesday.

Online gaming company DraftKings plunged as much as 12% on allegations by a short seller of illegal activity. A report from Hindenburg Research, a short seller, claimed DraftKings is hiding “black market operations.”

Meanwhile, short-sellers betting against meme stock AMC Entertainment lost $512 million on Monday when the movie theater chain rallied 15%, according to Reuters, citing data from analytics firm Ortex.

Solid Power, an electric-vehicle battery producer, announced it’s going public by merging with blank-check firm Decarbonization Plus Acquisition Corporation III in a deal valued at $1.2 billion.

In cryptocurrencies, bitcoin finally hit the $40,000-level on Monday after trending below that level to date in June.

Still, a new survey found that hedge fund bosses are planning to ramp up their holdings of cryptocurrencies, predicting that an average of 7.2% of their assets under management will be held in digital tokens by 2026.

Crude oil traded at the highest level since 2018. West Texas Intermediate crude was up 1.96% to $72.27 per barrel. Brent crude, oil’s international benchmark, gained 1.78% to $74.16 per barrel.

Gold slid 0.45% to $1,858.92 per ounce.

Copper also tumbled to a seven-week low amid concerns that China will gradually release its stockpiles in the coming months.

Lumber joined the downturn, sliding for the 10th straight day before mounting a recovery as the pandemic-driven boom in the commodity continues to show signs of weakness.

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US stocks hover near record high as investors await Fed comments on inflation

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  • US stocks hovered near record high Tuesday as investors await comments from the Federal Reserve.
  • The FOMC decision is due Wednesday after a two-day policy meeting, with most economists anticipating the central bank will leave its policy mostly unchanged.
  • Bitcoin rose past $40,000 after Elon Musk tweeted about Tesla and payments.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks hovered near record highs Tuesday as investors await comments from the Federal Open Market Committee about a timetable for scaling back on its accommodative policies.

The FOMC decision is due Wednesday after a two-day meeting, with most economists anticipating the central bank will leave its policy mostly unchanged. Investors will be focusing on tapering discussions, the latest economic projections, and inflation.

“It is going to be increasingly difficult for the Fed to soothe markets with its dovish stance, as they probably will be discussing tapering and will have to revise up forecasts for economic growth and inflation,” Bank of America said in a note on Tuesday.

While the central bank can exhibit patience this time, the situation will not be the same by the July and September FOMC meetings, Bank of America added.

In March, Fed officials saw consumer prices rising 2.4% in the fourth quarter of 2021 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run.

The S&P 500 closed at a record high on Monday for the second trading day in a row. The tech-heavy Nasdaq also closed at a record.

Here’s where US indexes stood at the 9:30 a.m. ET open on Tuesday.

Meanwhile, US retail sales fell 1.3% in May, the Census Bureau said Tuesday. Economists surveyed by Bloomberg held a median estimate for a 0.7% decline. The decline places monthly sales at $620 billion and just below the record-high seen in April. The April sales data was revised higher to a 0.9% jump from an initially unchanged reading.

Bitcoin finally hit the $40,000-level on Monday after trending below that level to date in June. Still, many, including investment adviser Rich Bernstein, believe that bitcoin is in a bubble, and the crypto mania is making investors ignore other asset classes that have more potential.

Bitcoin bull Michael Saylor’s MicroStrategy for its part plans to sell as much as $1 billion in common shares with an eye to adding to its huge holding in the cryptocurrency, it said in a filing with the Securities and Exchange Commission.

Oil edged higher. West Texas Intermediate crude was up 1.17% to $71.71 per barrel. Brent crude, oil’s international benchmark, gained 1.02% to $73.60 per barrel.

Gold slid 0.12% to $1,865.09 per ounce.

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The Fed is watching housing ‘carefully’ and hopes builders catch up to the red-hot market, Chair Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The Fed is “carefully” watching the housing market as huge demand sends prices soaring, Chair Jerome Powell said.
  • The central bank doesn’t see “the kind of financial stability concerns” that fueled the 2008 crash, he added.
  • Powell said he hopes homebuilders react “and come up with more supply,” which would also boost job growth.
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The housing market boom has caught the Federal Reserve’s attention.

By several measures, the US housing market is running at its hottest level since the mid-2000s bubble that nearly crashed the global financial system. Prices have surged at decade-high rates, and homebuying, while slowed from recent highs, remains elevated. What began as a pandemic-era rally has since raised concerns that soaring prices are eroding home affordability just as the US economy rebounds.

The market frenzy is being “carefully” monitored by the Fed, but there’s little reason to fear another nationwide crash, Fed Chair Jerome Powell said in a Wednesday press conference. The subprime lending and speculative purchasing that fueled the 2008 meltdown aren’t nearly as abundant this time around, making for a “very different housing market” than that seen a little over a decade ago, he added.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Powell said. “We don’t see bad loans and unsustainable prices and that kind of thing.”

Much of the boom is driven by demand significantly outstripping supply. Home inventory sits near record lows, and while housing starts recently leaped to the fastest rate since 2006, it will take some time for construction to equate to new supply.

Powell acknowledged the imbalance and highlighted that a bounceback in supply could also serve the labor market’s recovery.

“My hope would be that over time, housing builders can react to this demand and come up with more supply, and workers will come back to work in that industry,” he said.

Some of the current market strains can be tied directly to fallout from the 2008 crisis. The intense homebuying activity seen throughout the 2000s drove a boom in new construction. The rally lasted for years until dubious lending brought the market toppling down. Construction came to an almost-complete stop, and while it trended higher through the 2010s, it failed to retake levels seen during the prior decade’s surge. That building deficit is just now coming back to bite prospective homebuyers.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider’s Hillary Hoffower.

While the Federal Reserve has little direct influence on the housing market, the central bank’s promise to hold interest rates near zero for the foreseeable future places downward pressure on mortgage rates. Lower borrowing costs help lower the barrier to entry for potential buyers, as would the previewed jump in supply.

Signs point to demand holding up even as supply recovers. Nearly 9% of Americans plan to buy a home in the next six months, according to The Conference Board’s latest consumer confidence report. That’s the largest share since 1987.

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Fed’s Powell says it’s not yet time to consider shrinking emergency asset purchases

jerome powell
Federal Reserve Chairman Jerome Powell.

  • It’s “not yet” time for the Fed to even consider pulling back its policy support, Chair Powell said.
  • Fed policymakers ruled to hold interest rates at historic lows and maintain its asset purchases.
  • The recovery is “highly uncertain” and the economy is far from hitting the Fed’s goals, Powell said.
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The Federal Reserve expects a strong economic recovery through 2021, but it still aims to maintain ultra-easy financing conditions well into the future.

Members of the Federal Open Market Committee ruled on Wednesday to hold interest rates at historic lows following the conclusion of its two-day meeting. The central bank will also maintain its pace of purchasing at least $80 billion in Treasurys and $40 billion in mortgage-backed securities each month, according to a press release.

Buying such assets accommodates smooth market functioning and thereby supports “the flow of credit to households and businesses,” the Fed said in a statement.

Yet investors and economists alike have looked to Fed officials in recent weeks for any hints at when the central bank will taper its purchases. An unexpected withdrawal from the Fed could spark a sell-off in Treasurys, rapidly lift yields, and prematurely raise borrowing costs while the economy is still rebounding.

Policymakers’ newly improved projections for growth and employment place new pressure on the central bank to tighten monetary policy. Still, it’s “not yet” time to even consider tapering due to lasting risks to the economic outlook, Powell said during a press conference.

Concerns of a rate hike coming earlier than the Fed’s signaling also overlook the lasting risks to the US recovery, the central bank chief added.

“The state of the economy in two to three years is highly uncertain and I wouldn’t want to focus too much on the timing of potential rate increase that far into the future,” Powell said.

Staying on target for inflation and maximum employment

The statement underpins previous commentary from the Fed emphasizing it will patiently wait to reach its goals of above-2% inflation and maximum employment. Economic reopening and stimulus might drive a sudden rise in inflation, but the increase isn’t likely to be permanent, Powell said.

Inflation would then need to steadily trend above 2% before the Fed fully retracts its policy support, he added.

Reaching maximum employment is set to be a similarly lengthy process. While Fed officials now see the unemployment rate falling to 4.5% in 2021, the central bank is also tracking wage growth and labor force participation to determine the labor market’s health.

“No matter how well the economy performs, unemployment will take quite a time to go down and so will participation,” Powell said. “The faster the better. we’d love to see it come sooner rather than later.”

Maintaining loose monetary policy for such a long period marks a paradigm shift for the central bank. Decades-old tenets of economic theory held that unemployment could only drop so much before lifting inflation.

That dynamic is antiquated, at least according to the Fed chair. The previous expansion showed that, even with unemployment below 4% and inflation trending below 2%, hiring and wage growth could improve in historically underserved communities. Failing to give those groups a shot at a robust recovery would set the country back as it emerges from the pandemic, Powell said.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” he said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

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Fed lifts estimates for US economic growth and employment as vaccination speeds up

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  • The Fed boosted its estimates for economic growth in its projections since December.
  • US GDP is forecasted to grow 6.5% this year, up from the prior estimate of 4.2%.
  • The Fed also sees the unemployment rate sinking to 4.5% by the end of 2021.
  • See more stories on Insider’s business page.

Federal Reserve policymakers boosted their projections for the US economic recovery on Wednesday as new stimulus and vaccine rollouts pave the way for a summer reopening.

The Federal Open Market Committee’s median estimate for 2021 gross domestic product growth rose to 6.5% this year, and 3.3% for 2022. That compares to the previous forecasts of 4.2% and 3.2%, respectively. The unemployment rate is now expected to dip to 4.5% this year, an improvement from the prior forecast of 5%.

The FOMC released its quarterly summary of economic projections following the second day of its March meetings. The central bank elected to hold interest rates at historic lows and maintain its pace of asset purchases at $80 billion in Treasurys and $40 billion in mortgage-backed securities per month.

The estimates are the first to be published since December, and therefore are the first to include the impact the $900 billion stimulus package passed late last year, the $1.9 trillion plan signed earlier this month, and the improved pace of vaccination. The developments have all been viewed as major boons to the economic rebound and prompted several economists to lift their own growth forecasts.

The nation’s fight against the coronavirus has also shifted significantly since the December FOMC meeting. Daily case counts surged to a peak above 300,000 in early January but have since tumbled to around 50,000 as distancing measures and vaccination curbs the pandemic’s spread.

New stimulus has been criticized by Republicans for risking runaway inflation through the recovery. Fed officials have countered such concerns in recent weeks. Jerome Powell has repeatedly said that, although reopening and stimulus can produce a quick jump in inflation, the effect will likely be temporary and give way to a similarly sharp decline.

The FOMC’s latest estimates reflect such an outlook. Members see personal consumption expenditures inflation – the Fed’s preferred price-growth gauge – reaching 2.4% in 2021, up from the previous 1.8% estimate. Inflation will then fall to 2% in 2022 and reach 2.1% the following year.

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Monetary stimulus will remain in place well into economic recovery, Fed Chair Powell says

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  • Federal Reserve Chairman Jerome Powell reiterated Thursday that the central bank is far from tapering its asset purchases or raising interest rates.
  • “Now is not the time to be talking about an exit” from easy monetary policy, the central bank chief said in a virtual discussion.
  • The comments come after various Fed officials suggested that inflation could pick up faster than expected and, in turn, prompt an early rate hike.
  • Powell rebuffed fears of an unexpected policy shift, noting the central bank will notify the public “well in advance” if it is considering changes to its policy stance.
  • Visit Business Insider’s homepage for more stories.

Those worrying the Federal Reserve will prematurely rein in monetary stimulus have little to fear, Fed Chairman Jerome Powell said Thursday.

As COVID-19 vaccines roll out across the country, investors and economists have looked to Fed officials for any hints as to when its extremely accommodative policy stance could reach its conclusion. The central bank is currently buying $120 billion worth of Treasurys and mortgage-backed securities each month to ease market functioning, and its benchmark interest rate remains near zero to encourage borrowing.

An unexpected reversal from such easy monetary conditions risks spooking financial markets and cutting into the country’s bounce-back. Powell emphasized on Thursday that the central bank remains far from adjusting monetary conditions and that markets need not worry about a surprise policy shift.

“Now is not the time to be talking about an exit,” the central bank chief said in a virtual discussion hosted by Princeton University. “I think that is another lesson of the global financial crisis, is be careful not to exit too early. And by the way, try not to talk about exit all the time if you’re not sending that signal.”

Read more: ‘Vastly technically disconnected’: A market strategist breaks down the 3 indicators that show Tesla is overpriced – and says it’s due for a 17% correction in the next 6 weeks

The messaging mirrors past statements from Fed policymakers. Early in the pandemic, Powell told reporters the central bank wasn’t “thinking about thinking about” lifting interest rates. The Federal Open Market Committee noted last month that changes to its policy stance won’t arrive until “substantial forward progress” toward its inflation and employment objectives is made.

Still, recent commentary from some officials has stoked some fears that the Fed could cut down on the pace of its asset purchases sooner than expected. Kansas City Fed President Esther George said Tuesday that inflation could reach the Fed’s target “more quickly than some might expect” if the economy’s hardest hit sectors quickly recover.

A swifter-than-expected rebound could prompt an interest-rate hike as early as mid-2022 Atlanta Fed President Raphael Bostic said Monday. The projection stands in contrast with the FOMC’s general expectation for rates to remain near zero through 2023.

Powell reassured that, when the Fed starts considering a more hawkish stance, messaging will come well before action is taken. Treasury yields responded in kind, with the 10-year yield climbing nearly 4 basis points to 1.127 and the 30-year yield rising about 6 basis points to 1.874.

“We’ll communicate very clearly to the public and we’ll do so, by the way, well in advance of active consideration of beginning a gradual taper of asset purchases,” the Fed chair said.

Read more: Morgan Stanley says to buy these 26 economically sensitive stocks poised to outperform as oil prices spike 10% by year-end

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