Wall Street rally picks up pace ahead of Fed meeting

Today’s economic data contained nothing to suggest the Fed will reduce its stimulus at this month’s FOMC meeting, supporting the current stock market rally.

Records are tumbling once again on Wall Street, with the S&P 500 setting a new high today and the Dow advancing to within 0.3% of its all-time high.

The phenomenal run of the US stock market has been fuelled by the Fed’s on-going monetary stimulus and heading into the latest meeting today (the announcement is tomorrow), a change in the status quo looks highly unlikely.

The recent government shutdown is a significant factor in staying the Fed’s hand at this latest meeting, but quite apart from that, soft economic data is pushing tapering expectations further and further out: a survey conducted by CNBC shows the consensus now pointing to April 2014.

Today’s batch of reports are unlikely to have convinced the Fed that the economy is sufficiently healthy to justify a reduction in stimulus. A 0.1% decline in the September producer price index implies that inflation remains undesirably low, while a 0.1% drop in September retail sales and an 11% drop in consumer confidence in October are far from encouraging signs.

The stock market is currently in ‘good news is bad news’ mode though, and the prospect of extended stimulus has sent share prices skywards on Wall Street. By early afternoon, the Dow was up 0.6% or 93 points at 15,662 and the S&P 500 was up 0.39% at 1769.0.

The Dow has been especially helped by a 2% rise in IBM, the component with the second-highest weighting in the index. The rise in Big Blue was sparked by the news that the company’s board has authorised a $15 billion addition to its repurchase programme and will aim to authorise another increase at the October 2014 board meeting.

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