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Record Index Highs Again on Dovish Fed Taper Announcement

·4 min read

Once again, new record high closes across the board of stock market indexes greet the afternoon bell on Wall Street. The Dow grew another 105 points, +0.29%, while the S&P 500 gained +0.65% to 4660. The Nasdaq put up an even bigger day, +1.04%, or +162 points to 15,811, while the Russell 2000 once again outpaced its larger brethren, +1.80% to 2404. In just the past five sessions, the small-cap index is +8.4%.

The Federal Open Market Committee (FOMC) did indeed announce plans to taper asset purchases of Treasury bonds and mortgage-backed securities, beginning later in November, at a rate of $15 billion per month. From the $120 billion per month currently being purchased, this puts the timeline for finishing the tapering process in June of 2022. The Fed did not announce any direct plan for “lift off” (raising interest rates from their current 0-0.25%), but may begin as soon as the tapering process is complete.

Fed Chair Jay Powell reiterated he believes inflation in the current economy is still Covid-related, and that the supply constraints leading to the bottlenecks causing inflation cannot be addressed by the FOMC directly. Powell believes these constraints, while demand remains strong, are what’s causing inflation, and that they will work themselves out over the course of the next year. That said, the Fed will remain “data driven,” with preparations “for different eventualities” as economic metrics dictate.

Market indexes took this news quite well; in actuality, it’s hard to have a more dovish approach toward the direction of raising interest rates while still offering a timetable for doing so. This is pretty much a Goldilocks scenario for investors, even at fresh market highs we’re seeing every day going back to mid-October; the S&P has only posted two lower trading days going back to October 12th.

As far as earnings results, Qualcomm QCOM shares rose +5.5% on big beats for both top and bottom line fiscal Q4 numbers: earnings of $2.55 per share were well above the $2.26 per share expected, on $9.32 billion, which easily outpaced the $8.88 billion in the Zacks consensus. Next quarter guidance was robust: earnings of $2.90-3.10 per share next quarter is a big improvement from the $2.63 estimate, on $10.8 billion in sales, which takes out expectations of $9.89 billion for the quarter.

Similarly, Booking Holdings BKNG shares are +6.5% on strong positive surprises in its Q3 report, with earnings of $37.70 per share on sales of $4.68 billion in the quarter far beyond the $31.56 per share and $4.16 billion in revenues expected, which more than doubled total Q3 revenues in the year-ago quarter. Gross Travel Bookings grew +77% year over year, and the stock is now cresting at all-time highs near $2600 per share.

Another stock that outperformed expectations on both top and bottom lines this afternoon is Etsy ETSY, whose 62 cents per share surpassed the Zacks consensus on 50 cents per share, and sales of $532.4 million swept past the $518.5 million estimate. However, shares are -3.6% in late trading on slowing growth in Active New Buyers: 7.4 million in Q3 follows 8 million in Q2 and 9 million in Q1 of this year. That said, Gross Margin Sales (not counting face masks) are +23% year over year. The e-commerce service provider had brought a Zacks Rank #2 (Buy) rating into its earnings report.

One stock dropping -8% after hours is Roku ROKU, which, after posting a big earnings beat of 48 cents per share in its Q3 report, missed slightly on revenues to $680 million in the quarter. But the red flag signaling the sell-off appears to be the lowered guidance for next quarter, to a mid-point of $893 million for Q4 from a previous Zacks consensus of $948.7 million. Active Accounts and Active Streaming Hours both came in light of estimates.

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