Despite a slow open, equity markets have been quietly climbing higher on Wednesday, helped out by a series of minor but positive headlines that are boosting investor sentiment.
At 1pm, an hour before the Federal Reserve releases its anecdotal summary of economic conditions across the 12 Fed districts, all three US indexes are well into positive territory. The Nasdaq is leading the pack with a 1.26% advance to 2,064 ― its highest reading since early October. The S&P 500 has also hit an 11-month high as it treads up 0.90% to 1,035. Meantime, the Dow is up 0.68% to 9,562, just 18 points below its 2009 peak in late August.
No major news item has pushed equities single-handedly, but a few data points and two speeches have helped keep the chatter positive all morning.
Before markets opened, Charles Evans, President of the Chicago Federal Reserve, said the economy avoided a deflationary spiral thanks to aggressive policy action from the Fed. With that threat out of the way, the central bank will now pursue a course to ensure that inflation won’t result from the Fed’s liquidity injections.
“Just as the Fed acted responsibly to prevent a potential deflation, it will do so to prevent a future increase in inflation above our price stability objective,” Evans said before the Council of Foreign Relations. “As the economy continues to improve, and when we see rising inflation pressures, Fed policy will respond aggressively,” he added.
On Capitol Hill, the Obama administration defended the Making Home Affordable Program, which has been under fire for failing to make rapid progress in preventing foreclosures.
Contrary to this less than stellar reputation, the program “has already been more successful than any previous similar program in modifying mortgages for at risk borrowers to sustainably affordable levels, and helping to avoid preventable foreclosures,” said Michael Barr, assistant Treasury Secretary for Financial Institutions, before the House Financial Services Committee.
“Nonetheless, we recognize that challenges remain in implementing and scaling up the program, and are committed to working to overcome those challenges and reach as many borrowers as possible,” he added.
The Treasury said 12% of eligible borrowers, or 360,165 homeowners, have opted into the government’s trial modifications. The goal is to have half-a-million trials by Nov. 1.
In fresh data news, the Mortgage Bankers Association reported that interest rates on a 30-year loan moved down 13 basis points to 5.02% in the week ending September 2, spurring demand for new loan applications. The Market Composite Index climbed 17% in the week to hit its highest level since late May, pushing the annual gain to a dramatic +64.5%.
The 3-month low in mortgage rates helped refinances climb 22.5% in the week ― the biggest gain since mid-March.
The retail world also posted some decent headlines this morning. A weekly report from ICSC and Goldman Sachs showed sales bounce up 0.6% last week, more than erasing 0.5% fall in the week before.
“Although easier comparisons in September will help to improve the trend for the month, ICSC Research still expects sales will be down about 2 percent from its year-ago level,” Michael Niemira, chief economist at the International Council of Shopping Centers.
The Johnson Redbook report confirmed the week’s strength. Compared to last year retail sales were down 2.6% in the week, but that compares favorably with the -4.1% print in the prior week.
The Treasury Department successfully auctioned $20 billion 10 year notes at 1pm. READ MORE
If market sentiment stays up after the Beige Book is released at 2pm, Wednesday will mark the fourth straight gain for equities.
