Raised economic projections from the Federal Open Market Committee may allow the US stock market rally to extend into other areas outside of technology. As a result, the Dow Jones might benefit. Sale based on enterprise value of $8.4 billion (EUR 7.15B), reflecting a post-MOU $350M (€300M) price reduction, offset by positive foreign currency impact… A St. George man has been sentenced to 24 months in federal prison after defrauding a couple in his church congregation. U.S. stock futures were lower early Thursday as traders digested the Federal Reserve’s pledge to keep rates low over the next few years. There’s a lot riding on this meeting of the U.S. central bank. U.S. benchmark stock index closed mostly lower Wednesday, after the Federal Reserve said it would likely hold interest rates near zero until at least 2023…
- The Dow Jones traded modestly higher following the Fed’s interest rate decision Wednesday
- Upbeat GDP forecasts might fuel a gradual transition from tech into other sectors, benefiting the Dow
- DailyFX Education Summit: Trade Your Market
The Dow Jones climbed slightly higher following the Fed’s September rate decision in which the Federal Open Market Committee kept rates unchanged, as expected. In what was perhaps less expected, the central bank raised a number of economic forecasts from unemployment expectations to growth projections. The upward revision, while encouraging, was joined by commentary that would suggest the Fed is expecting widespread economic disruption until a vaccine is widely available.
Either way, lower unemployment and higher growth expectations might allow more traditional businesses, like those outside of technology, to rebound more quickly than what was originally believed. Since the recovery rally has been led in large part by the Nasdaq 100 and the FANGMAN group, signs that a broader recovery could occur ahead of schedule might see a slight rotation from technology into sectors like consumer discretionary, industrials, energy and value.
With that in mind, the Dow Jones may enjoy a slight boost compared to the Nasdaq, allowing traders the opportunity to reduce the gap between the two indices. That said, the findings of the Fed do not necessarily make technology stocks less attractive, but they might provide alternatives in a market that has had its focus narrowed for months.
Created in TradingView.
Consequently, I am hesitant to suggest an immediate transition into value stocks at the expense of technology stocks, but I do believe the Fed’s projections make such a rotation slightly more likely. In the meantime, traders should look for confirmation of such a convergence in the ratio between the sectors.
–Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
Author: Peter Hanks
Bombardier and Alstom Sign Definitive Agreement for Sale of Transportation Business
- Sale based on enterprise value of $8.4 billion (EUR 7.15B), reflecting a post-MOU $350M (€300M) price reduction, offset by positive foreign currency impact
- Net proceeds to Bombardier expected to be ~$4.0B at closing
- Closing now expected in the first quarter of 2021, subject to customary closing conditions and remaining regulatory approvals
All amounts in this press release are in U.S. dollars unless otherwise indicated. Amounts in EUR in this press release are converted to USD at an approximate 1:1.17 exchange rate.
MONTREAL, Sept. 16, 2020 (GLOBE NEWSWIRE) — Bombardier (TSX: BBD.B) today announced that it has signed a definitive Sale and Purchase Agreement (SPA), with Alstom SA and the Caisse de dépôt et placement du Québec (“la Caisse”) for the sale of its Transportation business to Alstom.
Under the SPA, Bombardier and la Caisse will sell their interests in Bombardier Transportation to Alstom on the basis of an enterprise value of $8.4 billion (EUR 7.15B), reflecting a $350M (EUR 300M) price reduction from the previously announced Memorandum of Understanding (MOU), offset by the impact of a more favourable currency exchange rate.
Based on Bombardier Transportation’s current operational performance and market conditions, total proceeds after the deduction of debt-like items, transferred liabilities and estimated closing adjustments1 are expected to be $6.2B, based on the lower end of the range agreed to in the SPA. After deducting la Caisse’s equity position of $2.2B billion, Bombardier expects net proceeds of ~ $4.0B2. This amount includes $585M (EUR 500M) of Alstom shares for a fixed subscription price of EUR 47.50 per share, monetizable after a three-month lock-up post-closing.
“Today’s announcement marks a significant milestone towards achieving our near-term priorities and repositioning Bombardier as a pure-play business jet company,” said Éric Martel, President and Chief Executive Officer, Bombardier Inc. “The proceeds from this transaction will allow us to begin reshaping our capital structure and start addressing our balance sheet through debt paydown, so that we can achieve the full potential of our incredibly talented employees and our industry leading business jet portfolio.”
The signing of the SPA follows the completion of the required works council consultations. With regulatory approvals obtained from several jurisdictions, including the European Commission, the transaction closing is now expected in the first quarter of 2021, subject to the completion of the remaining regulatory reviews and other customary closing conditions, as well as Alstom shareholders’ approval at the company’s upcoming October 29, 2020 Extraordinary Shareholders’ Meeting.
With nearly 60,000 employees across two business segments, Bombardier is a global leader in the transportation industry, creating innovative and game-changing planes and trains. Our products and services provide world-class transportation experiences that set new standards in passenger comfort, energy efficiency, reliability and safety.
Headquartered in Montréal, Canada, Bombardier has production and engineering sites in over 25 countries across the segments of Aviation and Transportation. Bombardier shares are traded on the Toronto Stock Exchange (BBD). In the fiscal year ended December 31, 2019, Bombardier posted revenues of $15.8 billion. News and information are available at bombardier.com or follow us on Twitter @Bombardier.
1 Includes the impact from obligations related to achieving a minimum cash balance at Bombardier Transportation at the end of 2020.
2 While the SPA is based on EUR currency, the parties have agreed that net cash proceeds to Bombardier will be paid in USD at the current €/USD exchange rate.
Bombardier is a trademark of Bombardier Inc. or its subsidiaries.
This press release includes forward-looking statements, which may involve, but are not limited to: statements with respect to our objectives, anticipations and outlook or guidance in respect of various financial and global metrics and sources of contribution thereto, targets, goals, priorities, market and strategies, financial position, market position, capabilities, competitive strengths, credit ratings, beliefs, prospects, plans, expectations, anticipations, estimates and intentions; general economic and business outlook, prospects and trends of an industry; expected demand for products and services; growth strategy; product development, including projected design, characteristics, capacity or performance; expected or scheduled entry-into-service of products and services, orders, deliveries, testing, lead times, certifications and project execution in general; competitive position; expectations regarding challenging Transportation projects and the release of working capital therefrom; expectations regarding revenue and backlog mix; the expected impact of the legislative and regulatory environment and legal proceedings; strength of capital profile and balance sheet, creditworthiness, available liquidities and capital resources and expected financial requirements; productivity enhancements, operational efficiencies and restructuring initiatives; expectations and objectives regarding debt repayments and refinancing of bank facilities and maturities; expectations regarding availability of government assistance programs, compliance with restrictive debt covenants; expectations regarding the declaration and payment of dividends on our preferred shares; intentions and objectives for our programs, assets and operations; and the impact of the COVID-19 pandemic on the foregoing and the effectiveness of plans and measures we have implemented in response thereto. As it relates to the transaction discussed herein, this press release also contains forward-looking statements with respect to: the expected terms, conditions, and timing for completion thereof; the anticipated proceeds and use thereof and/or consideration therefor, as well as the anticipated benefits of such transaction and their expected impact on our outlook, guidance and targets, operations, infrastructure, opportunities, financial condition and cash on hand, business plan and overall strategy (including our expectation of a deleveraged profile and reshaped capital structure and the retiring of la Caisse’s preferred equity in Transportation); and the fact that closing of this transaction will be conditioned on certain events occurring, including without limitation the receipt of necessary regulatory approvals and receipt of Alstom shareholder approval in respect of the required capital increase.
Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may”, “will”, “shall”, “can”, “expect”, “estimate”, “intend”, “anticipate”, “plan”, “foresee”, “believe”, “continue”, “maintain” or “align”, the negative of these terms, variations of them or similar terminology. Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key elements of our current objectives, strategic priorities, expectations, outlook and plans, and in obtaining a better understanding of our business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
By their nature, forward-looking statements require management to make assumptions and are subject to important known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecast results set forth in forward-looking statements. While management considers these assumptions to be reasonable and appropriate based on information currently available, there is risk that they may not be accurate. The assumptions underlying the forward-looking statements made in this press release in relation to the transaction discussed herein include the following material assumptions: the satisfaction of all closing conditions (including without limitation receipt of regulatory approvals on acceptable terms within commonly experienced time frames and receipt of Alstom shareholder approval in respect of the required capital increase) and successful completion of such transaction within the anticipated timeframe, the realization of the intended benefits therefrom (including receipt of expected proceeds and intended use thereof) within the anticipated timeframe; our ability to retain key management and employees during the pendency and following completion of the transaction; our ability to satisfy our liabilities and meet our financial covenants and debt service obligations during the pendency and following completion of the transaction; our ability to access the capital markets as needed during the pendency and following completion of the transaction; and fulfillment by the other parties of their respective obligations, commitments and undertakings pursuant to transaction documentation. For additional information, including with respect to the other assumptions underlying the forward-looking statements made in this press release, refer to the assumptions below the Forward-looking statements in the MD&A of our financial report for the three-and six-month periods ended June 30, 2020 and the Strategic Priorities and Guidance and forward-looking statements sections in the applicable reportable segment in the MD&A of our financial report for the fiscal year ended December 31, 2019. Given the impact of the changing circumstances surrounding the COVID-19 pandemic and the related response from Bombardier, governments (federal, provincial and municipal), regulatory authorities, businesses and customers, there is inherently more uncertainty associated with our assumptions as compared to prior periods.
Certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, risks associated with general economic conditions, risks associated with our business environment (such as risks associated with “Brexit”, the financial condition of the airline industry, business aircraft customers, and the rail industry; trade policy; increased competition; political instability and force majeure events or global climate change), operational risks (such as risks related to developing new products and services; development of new business and awarding of new contracts; book-to-bill ratio and order backlog; the certification and homologation of products and services; fixed-price and fixed-term commitments and production and project execution, including challenges associated with certain Transportation projects; pressures on cash flows and capital expenditures based on project-cycle fluctuations and seasonality; execution of our strategy, transformation plan, productivity enhancements, operational efficiencies and restructuring initiatives; doing business with partners; inadequacy of cash planning and management and project funding; product performance warranty and casualty claim losses; regulatory and legal proceedings; environmental, health and safety risks; dependence on certain customers, contracts and suppliers; supply chain risks; human resources; reliance on information systems; reliance on and protection of intellectual property rights; reputation risks; risk management; tax matters; and adequacy of insurance coverage), financing risks (such as risks related to liquidity and access to capital markets; retirement benefit plan risk; exposure to credit risk; substantial debt and interest payment requirements; restrictive debt covenants and minimum cash levels; financing support for the benefit of certain customers; and reliance on government support), market risks (such as foreign currency fluctuations; changing interest rates; decreases in residual values; increases in commodity prices; and inflation rate fluctuations). For more details, see the Risks and uncertainties section in Other in the MD&A of our financial report for the fiscal year ended December 31, 2019. Any one or more of the foregoing factors may be exacerbated by the growing COVID-19 outbreak and may have a significantly more severe impact on our business, results of operations and financial condition than in the absence of such outbreak. As a result of the current COVID-19 pandemic, additional factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to: risks related to the impact and effects of the COVID-19 pandemic on economic conditions and financial markets and the resulting impact on our business, operations, capital resources, liquidity, financial condition, margins, prospects and results; uncertainty regarding the magnitude and length of economic disruption as a result of the COVID-19 outbreak and the resulting effects on the demand environment for our products and services; emergency measures and restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions; disruptions to global supply chain, customers, workforce, counterparties and third-party service providers; further disruptions to operations, production, project execution and deliveries; technology, privacy, cyber security and reputational risks; and other unforeseen adverse events.
With respect to the transaction discussed herein specifically, certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to: the failure to receive or delay in receiving regulatory approvals on acceptable terms, the failure to receive or delay in receiving Alstom shareholder approval in respect of the required capital increase, the occurrence of a material adverse change, or otherwise satisfy the conditions to the completion of this transaction or delay in completing, and uncertainty regarding the length of time required to complete, such transaction, and all or part of the intended benefits therefrom not being realized and all or part of the anticipated proceeds therefrom not being available to us within the anticipated timeframe, or at all, or it is determined, necessary or required to direct all or part of the anticipated proceeds therefrom towards other uses than those identified in this press release; and alternate sources of funding to replace the anticipated proceeds from such transaction may not be available when needed, or on desirable terms; the occurrence of an event which would allow the parties to terminate their obligations, commitments and undertakings pursuant to transaction documentation; changes in the terms of the transaction; the failure by the parties to fulfill their obligations, commitments and undertakings pursuant to transaction documentation; Bombardier being unable to satisfy its liabilities and meet its financial covenants and debt service obligations during the pendency and following completion of the transaction; the failure to retain our key management, personnel and clients during the pendency and following completion of the transaction and risks associated with the loss and replacement of key management and personnel; and the impact of the announcement of the transaction on our relationships with third parties, including potentially resulting in the loss of clients, employees, suppliers, business partners or other benefits and goodwill of the business. There is no certainty, nor can we provide any assurance, that the conditions to closing of the proposed transaction will be satisfied or, if satisfied, when they will be satisfied. If the proposed transaction is not completed for any reason, there is a risk that the announcement of such transaction and the dedication of substantial resources of Bombardier to the completion thereof could have a negative impact on our operating results and business generally, and could have a material adverse effect on our current and future operations, financial condition and prospects, including the loss of investor confidence in connection with our ability to execute its strategic plan. In addition, failure to complete the proposed transaction for any reason could materially negatively impact the market price of our securities. If the proposed transaction is not completed for any reason, there can be no assurance that management will be successful in its efforts to identify and implement other strategic alternatives that would be in the best interests of Bombardier and its stakeholders within the context of existing market, regulatory and competitive conditions in the industries in which we operate, on favourable terms and timing or at all, and, if implemented, that such actions would have the planned results. We also have incurred significant transaction and related costs in connection with the proposed transaction, and additional significant or unanticipated costs may be incurred.
Readers are cautioned that the foregoing list of factors that may affect future growth, results and performance is not exhaustive and undue reliance should not be placed on forward-looking statements. For more details, see the Risks and uncertainties sections in Other in the MD&A of our financial report for the fiscal year ended December 31, 2019. Other risks and uncertainties not presently known to us or that we presently believe are not material could also cause actual results or events to differ materially from those expressed or implied in our forward-looking statements. The forward-looking statements set forth herein reflect management’s expectations as at the date of this press release and are subject to change after such date. Unless otherwise required by applicable securities laws, we expressly disclaim any intention, and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
Montréal, Quebec, CANADA
Author: Bombardier Inc.
St. George realtor sentenced for defrauding couple from his church in investment scheme
A St. George man has been sentenced to 24 months in federal prison after defrauding a couple in his church congregation.
Gregory Moats Sampson, 46, pleaded guilty to wire fraud and money laundering and was sentenced Thursday by U.S. District Judge David Nuffer, according to a press release from the Department of Justice.
Sampson was also ordered to pay $250,000 in restitution and serve 36 months of supervised release after finishing his prison sentence. Sampson and his wife recently sold their half-million-dollar house and earned about $40,000 on the sale, according to court documents, and prosecutors have asked this $40,000 be turned over to the victims.
According to court documents, Sampson met the victims, identified as J.S. and K.S., around 2012 when he was their real estate agent. J.S. had $250,000 to invest after selling a home in Australia, and Sampson told J.S. he could help her with an investment.
J.S. and K.S. were “not sophisticated investors,” the press release states, and believed they could trust Sampson based on other relationships they had with him. Sampson told them that by investing with him, they could realize a return of $1 million in eight to 10 years and would receive stock certifications in a company. He also told them that since they were friends, he wouldn’t charge them for their investment.
In February 2014, J.S. and K.S. wrote a $250,000 check to Samspon’s business account as an investment for their retirement.
But rather than investing the money as promised, Sampson spent all of the victim’s money within a month. $98,320.19 went to paying off a personal loan; $82,000 was transferred to a company owned by his brother; and $20,000 went to a company Sampson owned that had nothing to do with investments. Court documents do not state what became of the remaining approximately $50,000.
When J.S. and K.S. sought documentation showing a portfolio of investments, Sampson did not provide any but consistently told them their investment was performing well.
Then, when J.S. and K.S. eventually demanded documentation or their money back, Sampson told them, “And you know who gets screwed in the deal? You do…and it’s not to say that I’m trying to protect my own (expletive) because I’m not going anywhere, I promise you, if I need to disappear, I would have already been gone. I’ve got enough money that I can disappear if I need to.”
Prosecutors attempted to negotiate with Sampson pre-indictment, offering to recommend a prison sentence of a year and a day if Sampson would return the victims’ money.
However, Sampson persisted in a not-guilty plea and was only a few weeks away from trial when he had a sudden “change of heart,” court documents state. “As a result, his behavior consumed substantial government resources and his victims have waited years for justice.”
In the press release, U.S. Attorney John W. Huber said while many federal fraud prosecutions focus on losses in the millions, Utah fraudsters should “take note” of the penalties that await them in smaller cases.
“Once again, we remind Utah investors to beware of the risks associated with big promises from purported friends and neighbors,” he said.
The Utah Division of Securities investigated the case, while Assistant U.S. Attorneys in the Utah U.S. Attorney’s Office prosecuted the case.
Kaitlyn Bancroft reports on faith, health, education, crime and under-served communities for The Spectrum & Daily News, a USA TODAY Network newsroom in St. George, Utah. You can reach her at KBancroft@thespectrum.com, or follow her on Twitter @katbancroft.
Dow futures fall more than 200 points, tech and airline stocks are lower
U.S. stock futures dropped as technology stocks declined, along with plays related to a successful coronavirus vaccine rollout.
Futures on the Dow Jones Industrial Average fell 262 points or 0.9% and pointed to an opening loss of more than 200 points for the average. S&P 500 futures and Nasdaq-100 futures both lost 1%.
Here’s what traders were watching Thursday:
- Investors evaluated for a second day the Federal Reserve’s interest rate outlook where it indicated interest rates could stay anchored to the zero-bound through 2023 as the central bank tries to spur inflation. Fed Chairman Jerome Powell also pressed lawmakers to move forward with stimulus. While traders want low interest rates, they may be second guessing what rates this low for years means for the economic outlook.
- Shares of stocks that would benefit most from a vaccine struggled in premarket trading amid conflicting messages about the timeline. President Donald Trump said late Wednesday that the U.S. could distribute a vaccine as early as October, contracting the director of the Centers for Disease Control and Prevention, who told lawmakers earlier in the day that vaccinations would be in limited quantities this year and not widely distributed for six to nine months. Carnival Corp and United Airlines both fell 2% in premarket trading.
- Technology stocks, which weighed on the market Wednesday and were the source of the sell-off earlier this month, were down in premarket trading again. Tesla was off by 2%. Netflix fell 1%.
- Shares of Snowflake, an IPO which captivated Wall Street on Wednesday as it doubled in its debut, were off by 3% in early trading.
- Traders were monitoring the status of stimulus talks after President Trump suggested Wednesday he could support a larger package. However, Politico was reporting that Senate Republicans appeared reluctant to do so without more details on a bill.
- Wall Street will get the latest look at U.S. weekly jobless claims at 8:30 a.m. ET. Jobless claims are expected to total 875,000, according to economists polled by Dow Jones, down slightly from the prior week.
The S&P 500 slid 0.5% on Wednesday in a late-day sell-off brought on by tech shares and a reassessment of the Fed’s forecast. Big Tech dragged down the S&P 500 and Nasdaq, with Apple, Facebook and Microsoft all closing lower. The S&P 500 was still up 1.3% this week heading into Thursday after posting its first two-week decline since May previously. But it now appears that comeback is fizzling.
Fed Chairman Jerome Powell said in a news conference easy monetary policy will remain “until these outcomes, including maximum employment, are achieved.”
Normally, the prospects of lower rates for a prolonged time period spur buying in equities but that was not the case on Wednesday.
“The major indices dipped back to their short-term trading range following the Fed’s announcements, confirming that bulls are still not out of the woods,” said Ken Berman, founder of Gorilla Trades. “While there was nothing scary in today’s Fed announcements, stocks reacted in a bearish fashion, especially in the tech sector.”
U.S. housing starts data are also set for release at 8:30 a.m.
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Author: Fred Imbert
Stock Markets Wait on Fed; FedEx Delivers; ADT Insiders Sell
Investors have counted on the Federal Reserve to provide valuable support to the stock market for a long time. So far, the Fed has been incredibly accommodative in creating an environment in which stocks can do quite well. With many commentators worrying that Fed’s efforts might prove insufficient, though, all eyes are on the central bank to see what it can pull out of its toolbox this time. Just after 10:30 a.m. EDT, the Dow Jones Industrial Average (DJINDICES:^DJI) was up 87 points to 28,083. The S&P 500 (SNPINDEX:^SPX) rose 6 points to 3,407, but the Nasdaq Composite (NASDAQINDEX:^COMP) was down 6 points to 11,184.
When markets are on edge, one thing investors can rely on is news affecting individual stocks. For FedEx (NYSE:FDX), the news was a definite positive, and the company’s earnings report had good news even for investors who didn’t own shares. Meanwhile, ADT (NYSE:ADT) wasn’t quite as lucky, as the company’s key shareholders sought to cash in on a recent up move.
Image source: Getty Images.
FedEx’s stock climbed 7% early Wednesday. The delivery giant reported fiscal first-quarter results that impressed not just shareholders, but the entire investing community.
FedEx’s fundamentals were strong. Revenue jumped by nearly 14% from year-earlier levels. A big improvement in margins sent net income up 60% year over year, with adjusted earnings per share seeing similar-sized gains.
Success came from across FedEx’s business. The express segment saw a solid 8% gain from a year ago, but the ground segment enjoyed the biggest gains, as revenue there jumped more than 35%. Only the freight segment held back FedEx’s sales growth. Moreover, cost-containment measures did a good job of keeping operating expenses growing at a slower rate than the top line.
When people are shipping goods, economies are generally strong. That’s the takeaway many market participants are focusing on in FedEx’s report, and that could bode well for the shipping company’s future as well as the entire stock market.
Shares of ADT went the other direction, falling 14%. The move came as the security company’s major investors chose to raise some capital under favorable conditions.
ADT launched a secondary stock offering late Tuesday, announcing that certain shareholders would sell 43.5 million shares. Those investors include investment funds controlled by Apollo Global Management, as well as current and former executive officers of the company. The pricing of that offering came early Wednesday, with the final figure coming in at $10 per share.
It’s important to understand that ADT won’t actually get any money from the offering. The company itself isn’t issuing new shares; this stock is coming solely from current investors looking to cash out on a portion of their investments.
However, the good news for ADT shareholders is that the sellers have agreed to a 120-day lockup on whatever holdings they have remaining following this offering. It’s never great to see major investors selling out, but following a sizable run-up in early August after announcing a strategic partnership, it’s understandable to see ADT making this move.
Author: Dan Caplinger
Stocks end mostly lower after Fed holds interest rates steady near zero, but underscores risks to economic recovery
U.S. benchmark stock indexes closed mostly lower Wednesday, after the Federal Reserve said it would likely hold interest rates near zero until at least 2023 given the outlook for inflation and employment in the wake of the coronavirus pandemic, but also indicated risks to the economy remain.
Initially, good earnings from the likes of FedEx provided some support, as did talk of coronavirus vaccine distribution plans by the White House, and upbeat sentiment about the latest batch of IPOs, including the cloud software company, Snowflake.
On Tuesday, the Dow rose 2.27 points to finish at 27,995.60, while the S&P 500 gained 17.66 points, or 0.5%, to trade at 3,401.20, marking its third straight increase. The Nasdaq finished up 133.67 points, or 1.2%, at 11,190.32, logging back-to-back gains.
Stocks gave up earlier gains to close mostly lower Wednesday, after the Fed indicated it will keep rates near zero through at least 2023, but also warned of risks to the economy without additional fiscal stimulus during the coronavirus pandemic.
The Dow initially climbed 300 points in afternoon trade, after the Fed’s rate-setting committee indicated that future rate hikes will hinge on at least two things: labor market conditions return to the “maximum employment” and inflation has risen to 2% and “is on track to moderately exceed 2% for some time.
But those gains faded after Fed Chair Powell reiterated that the economic downturn resulting from the pandemic is “the most severe in our lifetime,” in an afternoon news briefing. To that end, the central bank expects to keep up its “full range” of support up for some time, including its current $120 billion monthly pace of assets purchases in the form of government Treasurys and mortgage bonds until the economy is “far along in its recovery.”
Kathy Jones, Charles Schwab’s chief fixed-income strategist, said it boils down to the Fed confirming, once again, that it’s committed to doing all it can to support the economy, but that it wants to see Congress do more to blunt the pandemic’s carnage.
“I’ve never in my career heard so many Fed officials basically pleading for fiscal policy,” Jones told MarketWatch. “I think every time it comes up, and we realize it’s not happening yet, it weighs on the risk assets.”
Further, the Fed’s outline for a future where interest rates likely stay at zero for at least the next three years “is not a positive signal for the economy,” Jones said.
Powell said the economy likely risks ongoing unemployment stress, as well as an uptick in evictions and foreclosures, “things that will scar the economy,” without additional fiscal support from Congress, during his briefing.
It was the first policy statement and updated economic forecasts under the Fed’s new flexible inflation target strategy announced last month.
Here’s a recap: Fed decision day
Investors have come to expect a prolonged period of support from the Fed, which has helped bolster the U.S. stock market since its lows during the coronavirus crisis in March, but many also have been waiting on Congress to pass a spending package.
See: Why these strategists say at least $500 billion more is needed to fuel consumer spending during the pandemic
In U.S. economic data, a reading on retail sales in August just missed the MarketWatch consensus forecast, rising 0.6% for the month. Sales topped pre-crisis levels during the month, but the rate of growth is slowing.
“The consumer has performed well so far given the health and economic impact from Covid, but there is still a long way to go in the recovery story,” said James Knightley, ING’s chief international economist, in written commentary, underscoring obstacles such as high unemployment, slim chances of “meaningful fiscal stimulus in the next few months” and the “clear threat that a fractious election” that endanger consumer sentiment and spending.
Findings from a Bankrate survey conducted in June found that 36% of Americans were putting off at least one major milestone — finding a new job, marriage, having a child, buying a home or retiring — because of the coronavirus pandemic.
The OECD’s latest forecast for global growth published Wednesday shows the global recession may not be as bad as expected. The Paris-based organization said it now expects the world economy to shrink 4.5% this year, less than its June prediction for a 6% decline, reflecting a slowly improving U.S. labor market and China data.
See: U.S. plans for free COVID-19 vaccine, but only half of Americans say they’d take it
Mark DeCambre contributed reporting
Author: Joy Wiltermuth, Andrea Riquier