Investing.com - U.S. stocks rose on Wednesday after the Federal
Reserve said it would likely close its stimulus program at the end
of this year, a sign the economy is improving.
At the close of U.S. trading, the Dow 30 rose 0.47%, the S&P
500 index rose 0.46%, while the NASDAQ Composite index rose
The Volatility S&P 500 index, which measures the outlook for
market volatility, was down 3.76% at 11.53.
The economy continues to improve and will stand on its own two
feet without the support of monetary stimulus programs within a few
months, markets concluded after digesting the minutes of the
Federal Reserve's June policy meeting.
The Fed is currently buying $35 billion in Treasury and mortgage
debt a month to spur recovery, a monetary policy tool known as
quantitative easing that aims to stimulate the economy by
suppressing long-term interest rates.
The stimulus program aims to entice investors out of safe-haven
asset classes like the U.S. dollar and into equities with the hope
investing and hiring follow.
The Fed has gradually been trimming the amount of bonds it
purchases by $10 billion a month, and by end of this year, the
program should close if the Fed continues to taper on its current
"While the current asset purchase program is not on a preset
course, participants generally agreed that if the economy evolved
as they anticipated, the program would likely be completed later
this year," the minutes read.
"Some committee members had been asked by members of the public
whether, if tapering in the pace of purchases continues as
expected, the final reduction would come in a single $15 billion
per month reduction or in a $10 billion reduction followed by a $5
Expect that final cut to come in October if recovery continues
at its current pace.
"Participants generally agreed that if incoming information
continued to support its expectation of improvement in labor market
conditions and a return of inflation toward its longer-run
objective, it would be appropriate to complete asset purchases with
a $15 billion reduction in the pace of purchases in order to avoid
having the small, remaining level of purchases receive undue focus
among investors," the minutes read.
"If the economy progresses about as the Committee expects,
warranting reductions in the pace of purchases at each upcoming
meeting, this final reduction would occur following the October
The Fed's words bolstered stocks, as even through equities move
higher on stimulus programs, a decision to end the program
signifies economic recovery is gaining steam.
Still, concerns among monetary authorities that excessive
risk-taking may be occurring in the countrys' financial markets
kept investors somewhat cuatious.
Corporate bond spreads have been falling as have volatility
indicators such as the VIX, which could indicate that investors are
taking on risks despite the possibility of facing losses for which
they might not be fully prepared.
"Signs of increased risk-taking were viewed by some participants
as an indication that market participants were not factoring in
sufficient uncertainty about the path of the economy and monetary
policy," the minutes read.
"They agreed that the Committee should continue to carefully
monitor financial conditions and to emphasize in its communications
the dependence of its policy decisions on the evolution of the
economic outlook; it was also pointed out that, where appropriate,
supervisory measures should be applied to address excessive
risk-taking and associated financial imbalances."
Still, monetary policy will remain accommodative and will
promote "favorable financial conditions required to support the
economic expansion," words that Wall Street applauded.
Leading Dow Jones Industrial Average performers included Walt
Disney Company (NYSE:DIS), up 1.59%, Cisco Systems Inc
(NASDAQ:CSCO), up 1.50%, and Procter & Gamble Company
(NYSE:PG), up 1.37%.
The Dow Jones Industrial Average's worst performers included
Dupont Fabros Technology Inc (NYSE:DFT), down 0.44%, Pfizer Inc
(NYSE:PFE), down 0.32%, and General Electric Company (NYSE:GE),
European indices, meanwhile, ended the day largely higher.
After the close of European trade, the DJ Euro Stoxx 50 rose
0.66%, France's CAC 40 rose 0.40%, while Germany's DAX rose 0.36%.
Meanwhile, in the U.K. the FTSE 100 fell 0.30%.
On Thursday, the U.S. is to release the weekly government report
on initial jobless claims.
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