Tech Rally Sends NASDAQ to Record High – Fed Not as Dovish as Expected

The major U.S. stock indexes closed mixed but mostly higher on Wednesday, as investors awaited a potential fiscal economic stimulus package and after the U.S. Federal Reserve repeated a pledge to keep its benchmark interest rate near zero.

Gains in tech stocks, many of which have benefited from changes in consumer habits because of the pandemic, pushed the NASDAQ to a record high. Meanwhile, cyclical stocks pressured the Dow.

In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3701.17, up 6.55 or +0.19%. The blue chip Dow Jones Industrial Average finished at 30154.54, down 44.77 or -0.16% and the tech-driven NASDAQ Composite closed at 12658.19, up 63.13 or +0.57%.

Fed Less Dovish than Expected
The Fed kept its benchmark borrowing rate near zero following its two-day meeting. In addition, it pledged to keep buying at least $120 billion a month in bonds until its dual goals of full employment and sustained 2% inflation are met.

The Fed said it will buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” The Fed declined to make any changes to the duration of its bond-buying program, but Chairman Jerome Powell said the central bank would increase its asset purchases if the economic recovery slows.

Stocks at record highs and bond yields not far from their historic lows are telling two different stories, but Federal Reserve Chairman Jerome Powell said he isn’t worried about the disparity.

In fact, the central bank chief said during a news conference on Wednesday, the low rates are helping justify an equity surge that has gone on largely unabated since the March pandemic crisis lows.

US Lawmakers Move Toward COVID-Relief Deal
Congressional leaders closed in on a $900 billion rescue deal that would include a new round of direct payments to consumers. However, that package excludes a liability shield for businesses and state and local aid, CNBC has confirmed. Politico first reported the news.

Sectors and Stocks
The S&P 500 airlines index dropped after JPMorgan issued multiple downgrades in the sector, citing valuations.

Southwest Airlines Co fell after flagging a higher cash burn in the fourth quarter, as well as increased trip cancellations in December.

Alphabet edged down after Texas Attorney General Ken Paxton said he will file a multi-state lawsuit against the parent company Google.

Twitter Inc rose after JPMorgan upgraded the stock to “overweight,” saying it expects the social media company to stage a significant rebound in online advertising following a pandemic-fueled decline.

Marijuana producers Aphria Inc and rival Tilray Inc both gained after the two companies agreed to combine their operations and create the largest cannabis producer by sales.

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