Canada Markets close in 2 hrs 35 mins

What you need to know in markets on Friday

Heidi Chung
Reporter

Stocks pulled back on Thursday after a strong session on Wednesday following the midterm elections.

The S&P 500 (^GSPC) fell 0.25%, or 7.08 points, at the end of trading Thursday. The Dow (^DJI) rose slightly by 0.04%, or 11.12 points. The Nasdaq (^IXIC) fell 0.53%, or 39.87 points.

With the midterm elections in the rearview mirror, investors have shifted their focus back to earnings and interest rates. The Federal Reserve left interest rates unchanged on Thursday after a two-day meeting that was pushed back due to the election.

“[The] labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year,” the Federal Reserve said in a statement on Thursday.

According to the Fed’s interest rate forecast that was put out in September, there is still one potential rate hike on the table for 2018.

Looking ahead, Goldman Sachs released their market forecast for the next two years. “We forecast S&P 500 adjusted EPS will grow by 6% in 2019 (to $173) and by 4% in 2020 (to $181). We lift our 2018 estimate to $163 (from $159), representing 23% annual growth, aided by continued economic expansion and the reduced effective corporate tax rate. Our S&P 500 EPS forecasts are well below consensus estimates of $177 (+8%) in 2019 and $195 (+10%) in 2020,” David Kostin, chief U.S. equity strategist at Goldman Sachs, said in a note on Thursday.

However, Kostin explained that he expects economic growth to decelerate. “Economic growth is the most important macro driver of S&P 500 EPS and points to positive but decelerating growth through 2020. Although U.S. economic activity has been strong in 2018, the boost from fiscal policy and financial conditions is fading. GS economics expects real average annual U.S. GDP growth will gradually decelerate from 2.9% in 2018 to 1.6% in 2020.”

Looking ahead

On Friday at 8:30am ET, we’ll get the October producer price index (PPI), which is expected to have increased by 0.2% month-over-month or 2.5% year-over-year. Excluding food and energy, core PPI is expected to have climbed by 0.2% and 2.3%, respectively. Meanwhile, the University of Michigan’s consumer sentiment index is expected to have slipped to 98 in November from 98.6 a month ago.

Media behemoth Disney (DIS) reported earnings after the bell on Thursday and posted a big beat on both the top and bottom lines.

“We’re very pleased with our financial performance in fiscal 2018, delivering record revenue, net income and earnings per share,” Robert Iger, Chairman and CEO, said in a statement. “We remain focused on the successful completion and integration of our 21st Century Fox acquisition and the further development of our direct-to-consumer business.”

Shares were up around 2% in after-hours trade on Thursday.

Specialists Meric Greenbaum, second left, works with traders at his post on the floor of the New York Stock Exchange, Thursday, Nov. 8, 2018. Stocks are opening modestly lower on Wall Street as the market gives back some of its big gains from the day before. (AP Photo/Richard Drew)

Here’s what caught Yahoo Finance’s markets correspondent Myles Udland’s attention today

It’s the end of an era for Fed communications

On Thursday, the Federal Reserve kept interest rates unchanged in a range of 2%-2.25%.

Following this policy announcement, Fed chair Jay Powell did not meet with reporters to answer questions on the thinking behind the Fed’s decision. Ahead of Thursday’s meeting, economists at Bank of America Merrill Lynch previewed the November FOMC decision by writing, “see you in December.” Markets, ultimately, were little-changed. There was little for investors to glean from Thursday’s news.

But this era — where some Fed meetings come and go with little fanfare because of limited communication from the central bank — comes to an end on Thursday.

Starting in January 2019, Fed chair Jay Powell will hold a press conference following each of the Fed’s eight policy decisions. Currently, the Fed holds press conferences quarterly when the central bank’s summary of economic projections is updated; the next Fed press conference will be held in December.

“As Chairman, I hope to foster a public conversation about what the Fed is doing to support a strong and resilient economy,” Powell said in June. “And one practical step in doing so is to have a press conference like this after every one of our scheduled FOMC meetings.”

Powell added that these press conferences, “will give us more opportunities to explain our actions and to answer your questions,” adding that, “this change is only about improving communications.”

And while Powell emphasized markets should not take any signal about the pace of future rate hikes as a result of more frequent Fed communications, this shift in Powell’s communication schedule will also keep investors more alert ahead of each Fed decision.

In 2015, the Fed approached the beginning of its post-crisis rate hiking cycle, then-Fed chair Janet Yellen emphasized to investors that each meeting was “live,” meaning that interest rates could be raised at any meeting.

Markets, however, have for years been pricing in interest rate hikes at only one of the Fed’s quarterly meetings that are accompanied by press conferences with the Fed chair. Yellen’s argument that all meetings were realistic opportunities for the Fed to make a policy change fell on deaf ears.

Ahead of Thursday’s announcement, futures markets were assigning a roughly 92% chance that no change would be made to Fed policy, according to the CME Group; futures above 70% for any Fed move is seen as the threshold for markets giving the Fed and “all clear” to act without entirely surprising investors.

And though the market volatility in October may have changed the calculus for some Fed officials on how quickly the Fed should move to raise interest rates, the lack of a post-meeting press conference had taken the possibility of a policy change out of play ahead of time. With only eight scheduled meetings each year, investors were writing off half of these events narrows the window for Fed officials to tweak its rate policy and raising the stakes for the four meetings that were followed by press conferences. This conundrum exists no more.

Powell’s more frequent communications with market participants also come as President Donald Trump continues to complain that the Fed is making a mistake and raising interest rates too quickly. Last month, Trump went so far as to say he “maybe” made a mistake nominating Powell to the top job.

And while Powell has not commented Trump’s barbs — and would seem likely to remain away from a public or private war of words with the President — his more frequent communications with investors could aid the central bank in making clear its policy decisions are not being influenced by political considerations. Though as Greg Valliere told Yahoo Finance earlier this week, any Fed decisions that fall outside of consensus expectations are likely to be seen by at least some in markets as reactions to political pressure.

Powell’s decision to speak to the press after each Fed meeting is also part of his initiative to make Fed communications more digestible and less esoteric for the non-investing public. After the Fed’s June meeting at which it raised interest rates, Powell began by giving what he called a “plain-English summary” of the U.S. economy and what the Fed is trying to accomplish.

“The main takeaway is that the economy is doing very well,” Powell said back in June.

“Most people who want to find jobs are finding them, and unemployment and inflation are low. Interest rates have been low for some years while the economy has been recovering from the financial crisis. For the past few years, we have been gradually raising interest rates, and along the way, we have tried to explain the reasoning behind our decisions.”

Explanations that will now be more frequent.

Heidi Chung is a reporter for Yahoo Finance. Follow her on Twitter: @heidi_chung.

Follow Yahoo Finance on TwitterFacebookInstagramFlipboardLinkedIn, and reddit

More from Heidi:

Activision Blizzard shares tank on weak guidance

Papa John’s reports tumbling sales

What the market is getting wrong about oil