Stocks in the U.S. were modestly higher this week following the Federal Reserve’s policy announcement Wednesday. As anticipated, the Central Bank announced that it will soon begin reducing the pace of monthly bond purchases, the first step towards pumping the brakes on the massive amount of monetary relief provided in the wake of the COVID-19 pandemic. Tapering will start later this month, reducing the current $120 billion in monthly purchases by $15 billion – $10 billion in Treasuries and $5 billion in mortgage-backed securities. Interest rates moved higher following the announcement, with the yield on the 10-year Treasury note trading around 1.59% Wednesday afternoon. As third-quarter earnings start to wind down, investors will continue to look for cues from the Fed on the future path of monetary policy, particularly the outlook for potential rate hikes amidst rising inflation. Since the beginning of third-quarter earnings, the S&P 500 has rallied nearly 6%. On the data front, the Institute for Supply Management’s services index increased to an all-time high in October, reflecting large increases in the business activity and new order components but a modest decline in the employment component. Durable goods orders decreased by 0.3% in September, while factory orders climbed by 0.2%. Separately, the ADP jobs report showed private payrolls increasing by 571,000 in October, well above consensus.

Source: GSAM, Daily Upside, JPM, Factor Investor

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