US stock indices reach fresh records on accommodative Federal Reserve

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Vrasidas Neofytou
Head of Investment Research

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US stock indices reach fresh records on accommodative Federal Reserve

US stock futures climbed to fresh record highs on Thursday morning following the commitment from Federal Reserve to keep its monetary policy “accommodative” until the US economy recovers from the pandemic-led recession and meets its maximum employment and price stability (inflation) goals.

The S&P 500 index, which tracks the stock performance of 500 large companies tied with the broad economy such as Apple, Microsoft, Amazon, and others, reached the 4.100 mark this morning for the first time.

Moreover, the industrial Dow Jones Average Index and the tech-heavy Nasdaq Composite trade just below their all-time highs of 33.600 and 14.000 points, reflecting the robust growth outlook for the US economy after the pandemic.

The recent rally in US equities fuelled from the hopes for faster-than-expected US economic recovery after the approval of President Biden’s $2 trillion pandemic-relief infrastructure plan, and the successful vaccine rollout in States.

Based on the above bullish economic catalysts, the International Monetary Fund expects the U.S. economy to expand 6.4% in 2021 -- its fastest growth since 1984 -- and 3.5% in 2022.

Federal Reserve keeps dovish policy:

Supporting the US economy and financial markets, Federal Reserve officials reiterate the dovish outlook of the central bank during their last policy meeting, indicating that the economy is still far behind their employment and inflation goals. The bank expects that inflation will likely rise past 2% in the coming months.

The Central Bank would maintain the interest rates near zero at least through 2023 and would continue to purchase $120 billion a month of short-term Treasury bonds and mortgage-backed securities until "substantial" progress had been made toward its goals.

Fed Chairman Jerome Powell believes that the recent rally of the 10-year Treasury yields towards 1.78% is not a risk for their outlook as it reflects the recovery of the US economy, and it will not force the central bank to start tapering the current accommodative monetary policies.

Market Reaction:

Following the release of the Federal Reserve’s minutes, the 10-year Treasury yields dropped a near 1-week low of 1.64%, while the DXY-US dollar index fell near 92.25, far below from its recent peak of 93.50 posted on March 31.

The Fed-led weakness in bond yields and greenback allowed the prices of Gold to bounce back from last week’s low of $1.675/oz towards $1.750/oz, while the price of Silver climbed back again above $25/oz.

In the forex market, Euro advanced near $1.19, getting support from the softer greenback and the surprisingly upbeat survey of European Union business activity.

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