US stocks marked a fresh raft of record highs on Wednesday as the Fed brought forward the prospect of rate hikes in the world’s biggest economy and bank stocks hit record highs.
The market bellwether S&P 500 rose for the seventh successive day on Wednesday in its longest winning streak Sept 2013. The ticker closed up 0.5% at 2349 having earlier marked an intraday record high of 2,351.30.
The Dow Jones Industrial Average ended up 0.5% at 20,611. Earlier, it hit a record intraday high of 20,620.45.
The tech-heavy Nasdaq Composite was in play for a record high of 5,821.95 before closing just shy at 5819, up 0.6%.
In a less mild-mannered delivery than to the Senate on Tuesday, Fed chair Janet Yellen defended regulations on banks, especially the Volcker Rule on risky investments by banks, against questions from the House of Representatives Banking Committee. She also indicated that a rate hike might come sooner than some supposed.
With consumer prices inflation earlier reported running at its fastest clip since 2012 and gains by retail sales, that only fuelled the feeling of rate hikes even as industrial output numbers underwhelmed.
The Fed fund rate is now pricing in a 42% chance of a March rate hike. Although shy of 50% it has risen from just 30% at the start of the week.
Meanwhile, economists with JPMorgan tweaked their Fed forecasts on Wednesday, saying they now expected the US central bank to next lift rates by 25 basis points in May as opposed to June. The lender said the central bank would follow with a second and final increase for the year in September.
But that’s a fairly conservative view, with many observers reckoning that up to three rate hikes could be in the offing in 2017.
Meanwhile, economists at Goldman Sachs said that based on the inflation data released on Wednesday, “we now think it is a close call whether the committee will hike the funds rate at the next two meetings or wait until June, and we see very high odds (90%) of at least one rate increase by mid-year.”
Goldman (NYSE:GS) shares hit a record high and ended up 0.4% at $250.54. Another record-breaker was Wells Fargo (NYSE:WFC) which closed up 1% at $58.55.
Meanwhile, even as the chief executives of major retailers including Target (NYSE:TGT), JCPenney (NYSE:JCP), Best Buy (NYSE:BBY) and Gap (NYSE:GPS) arrived in Washington on Wednesday to lobby congressional Republicans against a "border adjustment tax" which they proposed, equity kingpoin investor Warren Buffett’s Berkshire Hathaway was casting them aside to the history bin.
Berkshire Hathaway has sold off $900mln of Walmart stock, choosing instead to invest billions in airlines.
The sale, which leaves Buffett with nearly no shares in Walmart, comes as the US's largest traditional retailer has been rushing to catch up to Amazon and other online competitors.
Amazon's market value is now $356bn, compared with Walmart's $298bn. Last year, Buffett acknowledged that traditional brick-and-mortar retailers were struggling in the face of competition from the e-commerce giant.
But given the fickle analysis of Buffett – he called death on airlines recently yet now switched that sentiment to retail – it might be best to look longer term.
Meanwhile, Yahoo (NASDAQ:YHOO) has agreed to take a price snip of $300mln on the original $4.8bn sale of its core business to Verizon Communications (NYSE:VZ) as both companies are determined to complete a deal that was jeopardised after the internet group revealed it had suffered two major data breaches, people involved in the negotiations said.
Yahoo shares closed up 1.4% at $45.65 while Verizon shares were down 0.4% to $48.08 on Wednesday.
The S&P Midcap 400 closed up 0.3% at 1734 and the S&P Smallcap 600 up 0.6% at 857 and led by computer equipment maker Black Box (NASDAQ:BBOX) up 12.9% to $10.10 after declaring its quarterly dividend at $0.12 per share and announcing a stock purchase.
Early trading
US stocks wasted no time breaking new record highs on Wednesday with several financial stocks marking record high levels on growing expectations of a March rate hike while a move on airlines by Warrant Buffett boosted that sector too.
The Dow Jones Industrial Average which closed the previous session on an intraday record high rose on Wednesday and hasn’t seen negative territory so far. It hit a fresh record of 20,559.33 as it eyes 21,000 this week.
The Dow was last up 0.2% at 20,553. One of the powerhouses was Goldman Sachs (NYSE:GS) which represents 24% of the index at present. The bank’s shares marked a record high of $ 250.58 and were last up 0.3% at $250.16 on growing expectations of a March rate hike by the Federal Reserve. Fed chair Janet Yellen is speaking to Congress again but with inflation data now at its highest level since 2012, data earlier showed, Fed futures are indicating a 42% chance of a rate hike next month. That feeds banking shares.
Citigroup (NYSE:C) shares were up more than 1% at $60.45, while JP Morgan Chase & Co (NYSE:JPM) shares were up 0.8% at $90.23. Earlier, they marked a record high of $90.30.
State Street Corp (NYSE:STT) was up 0.6% at $81.97 and Wells Fargo (NYSE:WFC) shares were up 0.9% at $58.47 having hit a record high of $58.52.
The only fly in the ointment was US industrial production unexpectedly shrank in January declining by the most in four months.
Industrial production declined 0.3% in January from the previous month when it climbed a downwardly revised 0.6%, according to data from the Federal Reserve. That compared with economists’ expectations for output to remain flat.
Despite the data influencing a weaker start, the market bellwether S&P 500 was up 0.2% at 2340.93 – a fresh record high.
But while banks were pumping the Dow higher, the biggest riser on the S&P 500 was Flir Systems Inc (NASDAQ:FLIR) up 8.5% at $37.06 after a jump in fourth quarter sales. However, the company continued its recent trend of missing estimates, as its fourth-quarter 2016 earnings per share of 52 cents lagged the Zacks Consensus Estimate by 5.5%.
Apart from gains by financials, airlines were also perking up after equities kingpin investor Warren Buffett’s investment vehicle Berkshire Hathaway sharply increased its stake in the sector.
Berkshire disclosed on Tuesday a $9.3bn holding in the industry. And while Buffett has previously called airlines “a death trap for investors”, Berkshire has spent more than $2.1bn each on the shares of four carriers.
American Airlines (NASDAQ:AAL) added 2.9% to $47.93, Delta Air Lines (NYSE:DAL) gained 3.8% to $51.73, making it the fifth-biggest riser in the S&P 500, United Continental Holdings rose 3.1% to $76.00, and Southwest Airlines (NYSE:LUV) was up 4.8% at $57.97, making it the third-biggest riser on the S&P 500.
The tech-heavy Nasdaq Composite index hit a record high of 5,793.92 and was last up 0.2% at 5792.
But outside of the majors, the markets were a little more fragile after a record-breaking run on Tuesday.
The S&P Midcap 400 was down 0.1% at 1728 and led by Fossil Group (NASDAQ:FOSL) tanked 16.4% to $19.11 after reporting weak fourth-quarter earnings and even weaker revenues.
The S&P Smallcap 600 was unchanged at 853.
Pre-Open
US stocks are poised for a mixed start on Wednesday but even a small gain from financials after the Federal Reserve’s chief speaks again on Capitol Hill may mean any uptick in stocks translates into fresh record highs.
Both the S&P 500 market bellwether and Dow Jones Industrial Average closed at their record intraday highs on Tuesday so a smidgeon higher today is enough to claim a fresh record. Other tickers all hit intraday record highs except the S&P 600.
The S&P 500 market bellwether and tech-heavy Nasdaq Composite are both indicated down around 0.1% while the Dow Jones Industrial Average, could mark a fresh record high at the opening as it is expected to open 0.06% higher.
US Federal Reserve chair Janet Yellen could give the markets further direction when she testifies before the House of Representatives starting at 1000 ET (1500 GMT).
On Tuesday, in her Semi-annual Monetary Policy Report to the Congress Yellen signalled in her testimony to the Senate that the next interest rate hike could come as early as March although markets still bet on the first hike in June and up to three this year.
Although January consumer price inflation ticked higher than forecast this might act as fuel for a March rate hike, which will fall into the lap of financials – boosting the Dow Jones to a fresh record high as heavily-weighted banks are included in the index, such as Goldman Sachs (NYSE:GS). Hence why the Dow was looking firmer on Wednesday in the futures pit.
Core inflation rose by 2.3% in the year to January versus a forecast of 2.1% and 2.2% in December. Inflation is now running at a faster rate than the Fed’s 2% target and at their fastest clip since 2012, so a March hike is becoming more likely.
Fuelling the expectations of a March rate hike, retail sales in the world’s largest economy notched up better than expected growth last month as new US President Donald Trump took to the White House – marking the fifth consecutive month of higher consumer spending.
Headline retail sales climbed 0.4% in January compared to the month prior, better than the 0.1% forecast by Wall Street economists. December’s growth was also revised up to 1% from 0.6%. Sales have now grown in every month since August last year.
In stock news, medical technology group Integra LifeSciences (NASDAQ:IART) has announced plans to buy Johnson & Johnson’s (NYSE:JNJ) Codman neurosurgery business for $1.045bn in cash.
The US company said the proposed deal would accelerate its international growth and help it to achieve targets of $2bn in revenue.
Integra LifeSciences shares were flat at $43.28 and J&J down 0.3% at $116.00 pre-market.
Shares in asset manager Fortress Investment Group (NYSE:FIG) surged in extended trading on Tuesday after it agreed to be bought by the Japanese firm SoftBank. The deal is worth $3.3bn in cash.
Fortress shares were up 28.1% at $7.96 pre-market.
Shares in Cigna (NYSE:CI) and Anthem (NYSE:ANTX) could be on the move after Cigna said on Tuesday it's calling off its $54 billion deal with Anthem – and threatened to sue.
The announcement came hours after Aetna (NYSE:AET) and Humana (HUM) said they were calling off their $34bn merger.
Both deals were targeted by the Justice Department and were recently blocked by federal judges, citing antitrust concerns.
Aetna shares were up 0.2% at $126.00 and Humana 0.7% at $207.33 after hours Tuesday. But not traded so far Wednesday.
Shares in American International Group (NYSE:AIG) dropped in extended trading on Tuesday as investors reacted to worse-than-expected quarterly results. The company reported a $3bn loss on Tuesday. Analysts had been expecting a profit.
AIG was also one of the financial institutions in the eye of the subprime mortgage and interbank crisis of 2007-2009 and required government assistance.
AIG shares were down 5.7% at $63.05 pre-market.
In happier earnings news, PepsiCo (NYSE:PEP) recorded fourth-quarter earnings beat analysts’ estimates and the firm now obtains 45% of revenue from ‘guilt free’ products.
However, PepsiCo shares were down 0.9% at $106.00 pre-market.
Shares of eCommerce marketplace Groupon Inc. (NASDAQ:GRPN) rose more than 10% after the company reported stronger-than-expected quarterly earnings. Excluding one-time items, Groupon reported non-GAAP earnings of 7 cents a share, topping the 3-cent profit analysts on average had been expecting, according to FactSet. Revenue rose to $934.9mln from $917.2mln in the year-earlier period.
Groupon shares were last up 13% at $4.27 pre-market.
So far it has been tech, aviation and automakers bosses meeting with President Trump in Washington, but on Wednesday it is the turn of retailers to come to the capital.
Only having fallen out with Trump over the withdrawal of his daughter Ivanka’s sartorial range from sale, they are coming to meet other Republicans.
The chief executives of major retailers including Target (NYSE:TGT), JCPenney (NYSE:JCP), Best Buy (NYSE:BBY) and Gap (NYSE:GPS) are in Washington to lobby against a "border adjustment tax" proposed by congressional Republicans.
Retailers are particularly vulnerable to such a tax because they sell a high volume of imported items -- clothes, electronics or general merchandise -- that could be made more expensive under the proposal.