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18.12.202011:56 Forex Analysis & Reviews: US stocks recorded new highs

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US stock indexes reached new highs at the close of trading on Thursday. This is amid progress in approving a new package of state support for the economy. Market participants continue to hope that the program of incentive measures will be adopted before the end of 2020. The new state aid package should support the US economy during a potential downturn in the winter season.

Exchange Rates 18.12.2020 analysis

All three major US indices updated intraday records at the beginning of the trading session. The S&P 500 jumped 0.6% to 3,722.48 points. The Dow Jones Industrial Average rose 0.5% to 3,0303.37 points, while the Nasdaq Composite gained 0.8% to 12,764.75 points

Exchange Rates 18.12.2020 analysis

The US Congress came much closer to agreeing on state support of about $900 billion. Senate Majority Leader Mitch McConnell said on Thursday that a final agreement could be reached very soon.

According to media reports, the new package of incentive measures will not include assistance to state authorities and protection of companies from claims in connection with the COVID-19 pandemic, it implies the next stage of direct payments to households. Recall that the epic with the adoption of the final program has been going on for several months. However, the remarkable progress from Congress in recent days inspires Americans with high hopes for quick, tangible support during the difficult period of the pandemic. Despite the fact that vaccinations have already begun in the US, the number of hospitalizations remains at a record. However, investors largely ignore the alarming statements of doctors, preferring to focus on Congressional negotiations to help workers and businesses affected by the pandemic in the very near future.

Today, most investors believe that the economy badly needs new incentives to help it survive until spring. Hopes are now pinned on the mass vaccination, designed to limit the spread of the virus in the coming year. The uncontrolled increase in infections from day to day has a negative impact on consumer confidence and retail sales. Do not forget that some US states have introduced new restrictions on the operation of companies.

The fact that the economy has faced severe obstacles is also evidenced by the report of the US Department of Labor. The initial applications for unemployment benefits increased by 23,000 to 885,000 last week, with forecasts of a slight decrease in the indicator. This is the highest figure since the beginning of September. Initial estimates indicated an expected decrease in the number of applications to 800,000.

In December, the Philadelphia manufacturing activity index also declined more than expected. According to the calculated data by the Federal Reserve Bank of Philadelphia, the indicator fell to 11.1 points, compared with 26.3 points in November. This is the lowest figure since May. Analysts expected the index to decrease to 20 points.

In addition, the US Federal Reserve, following the meeting that took place two days ago, announced the extension of the asset repurchase program of at least $120 billion per month until a compromise is reached on the goals of maximum employment and price stabilization.

Fed Chairman Jerome Powell said that the US economy is gradually recovering, but not as quickly as previously planned. At the same time, the Federal Reserve has improved its forecasts for the US economy for the next few years. According to the December report, the United States GDP will decrease by 2.4% in 2020, and then gain 4.2% in 2021 and 3.2% in 2022. In September, the Fed forecast a fall of 3.7% in the outgoing year and an increase of 4% and 3%, respectively, in the next two years.

On Thursday, the US Department of Commerce released information that the number of homes that began construction in November rose 1.2% from the previous month. Now, this figure is 1.547 million at an annual rate. The released figure was the highest since February 2020. Analysts predicted the preservation of the number of new buildings in the US in November at 1.53 billion.

And while experts are considering long-term scenarios and trying to predict the behavior of markets in the future, let's return to the current situation and analyze how the news of the outgoing week affected the performance of the US stock exchanges on Thursday.

Lennar shares rose 7.6% after the developer said that construction orders and the volume of completed construction in the 1st fiscal quarter will exceed analysts' expectations.

General Mills Inc. was up 1.3%. The profit and revenue of the largest food producer in the US in the 2nd fiscal quarter increased significantly. At the same time, both indicators exceeded even the most daring market forecasts.

Shares of Rite Aid Corp. grew by 17.4%. The reason for this euphoria was the report of the American pharmacy chain on exceeding expectations of profit and revenue in the 3rd fiscal quarter. The company's annual forecast also improved.

Jabil Inc.'s market value increased by 7.4%. The company's profit and revenue in the 1st fiscal quarter were significantly higher than expected.

Promotions Amazon.com Inc. fell 0.2%. The popular online retailer announced an increase in the time it takes for customers to return goods. In addition, Amazon has significantly expanded the locations where inappropriate purchases can be returned.

The capitalization of Steel Dynamics Inc. decreased by 1.9%. The well-known US steel company has made a promising outlook for the 4th quarter amid strong increases in flat coil prices.

Securities of poultry producer Sanderson Farms Inc. sank in price by 1.1%. The company went into profit in the last quarter and said it would maintain strong demand for chicken products in grocery stores in 2020.

As for the global equity markets, there was a single upswing. The pan-European Stoxx Europe 600 gained 0.3%. The leaders of growth were shares of raw materials and retail companies that are particularly sensitive to the state of the economy.

The Asia-Pacific markets have similar synchronous growth. The Chinese Shanghai Composite gained 1.1% at the end of the trading session, while the Japanese Nikkei 225 gained 0.2%.

The yield on 10-year U.S. Treasury bonds rose to 0.929% from 0.920% on Wednesday. The dollar continued to fall, and the WSJ dollar index lost 0.3%. On Wednesday, it fell to the lowest level since April 2018.

Such a huge decline was caused by the Fed's announcement that asset purchases worth $120 billion a month will continue until a compromise is reached in the movement towards targeted employment and inflation. The updated forecast confirms that the Central Bank plans to support financial markets in the foreseeable future.

Irina Maksimova
Analytical expert of InstaForex
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