Put on a Happy Face: Stocks Dip as Optimistic Fed Ends Bond Buying

That went remarkably well. The Federal Reserve released a hawk-tinged statement from its October FOMC meeting–and stocks bent but did not break.

Associated Press

The S&P 500 dipped 0.1% to 1,982.30 today, while the Dow Jones Industrial Average has slipped 0.2% to 16,974.31. The Nasdaq Composite fell 0.3% to 4,549.23.

Here’s what happened: As expected, the Fed ended its bond buying, but left the “considerable time” between the end of asset purchases and the first rate hike intact. A little more surprising: It painted an alnost rosy picture of the U.S. economy that all but ignored the market turmoil of the last month. The Fed called the risks to the job outlook and economy “nearly balanced,” spotted “solid job gains” and noted that the “underutilization of labor resources. is gradually diminishing.” CRT Capital’s David Ader takes it all in:

Bottom line is that this is a bit more optimistic than before with some enthusiasm for labor market and household spending.  Inflation remains an issue and mentions energy and ‘other’ factors (presumably the dollar) and so that extends this concern a bit as does the idea of “Market-based measures of inflation compensation having declined  (whatever that is). We look for extended period to disappear in Dec or very very soon so that’s moot point.  Note that distant Fed fund futures are very little changed which makes sense.

ISI Group’s Dennis DeBusschere hopes the Fed is reading things right:

…although inflation is clearly front and center, they are for now talking about temporary influences, and they note that labor underutilization is gradually diminishing. Hope they are correct on inflation expectations being wrong and temporary influences keeping inflation low. Market could react very poorly to inflation exp being correct and influences being more than just temporary.

Making the market’s recent gains temporary, too.