Summary

The major equity indexes were mixed on Wednesday after the Fed kept interest rates unchanged and gave encouraging comments about the economy. The Fed pointed to solid economic growth and a strengthening labor market while downplaying the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December.

Investors had all but ruled out a move at the U.S. central bank’s policy meeting this week with attention focused on who will be in charge of monetary policy at the end of Fed Chair Janet Yellen’s first term in February 2018.

President Trump is set to announce his nomination on Thursday. Fed Governor Jerome Powell, who has supported Yellen’s gradual approach to raising rates, is viewed as relatively stock-market friendly and the likely choice.

After the closing bell, a Wall Street Journal report, citing a person familiar with the matter, said the White House has notified Powell that it will nominate him as the next Fed chair on Thursday.

Developments at the Fed come as corporate earnings, which have supported the stock market’s run to record highs, are coming in generally above expectations for the third quarter.

With about two-thirds having reported, S&P 500 companies are on track to have earnings growth of 7 percent for the third quarter, up from 5.9 percent growth expected at the start of October, according to Thomson Reuters I/B/E/S.

After the market closed, Facebook fell 1.7 percent in volatile trading after the social media company’s quarterly report.

Estee Lauder rose 9.2 percent after the cosmetics maker forecast holiday-quarter sales ahead of Street expectations. U.S. Steel rose 7.8 percent after the company’s quarterly report.

Approximately 6.9 billion shares changed hands on the major domestic equity exchanges, a number that was above the nearly 6.2 billion share daily average over the last 20 sessions.

No Interest Rate Change by the Fed

The Federal Reserve kept interest rates unchanged on Wednesday and pointed to solid economic growth and a strengthening labor market while playing down the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December.

Wall Street had all but ruled out a rate hike at the central bank’s policy meeting this week and attention has largely been focused on who will oversee monetary policy at the end of Fed Chair Janet Yellen’s first term in February 2018.

President Donald Trump is set to announce his nomination on Thursday afternoon with Fed Governor Jerome Powell, a soft-spoken centrist who has supported Yellen’s gradual approach to raising rates, seen as having a lock on the job.

“The labor market has continued to strengthen and … economic activity has been rising at a solid rate despite hurricane-related disruptions,” the Fed’s rate-setting committee said in a statement after its unanimous policy decision.

In keeping with that encouraging tone, the central bank’s policymakers acknowledged that inflation remained soft but did not downgrade their assessment of pricing expectations.

The federal fund futures put the odds of a December rate hike at about 98 percent, according to CME Group’s FedWatch program.

Fed policymakers have been buoyed in recent months by a stronger global and domestic economy and further tightening in the labor market, although they are divided over the causes and duration of the current weakness in inflation.

The Fed’s preferred inflation measure sits at 1.3 percent after retreating further from the central bank’s 2 percent target for much of the year.

Nevertheless, Yellen and some other key policymakers have said the Fed still expects to continue to gradually raise rates given the strength of the overall economy. In its statement, the Fed reiterated it expects inflation to rise back to its target over the medium term and emphasized that the unemployment rate has declined further.

The Fed said it was proceeding with the reduction of its $4.2 trillion in holdings of Treasury bonds and mortgage-backed securities, a process which began in October.

New Fed Governor Randal Quarles, Trump’s first appointee to the central bank, voted at this week’s policy meeting. The Republican president could fill at least three more open vacancies on the Fed’s seven-member board in the coming months.

The central bank is scheduled to hold its final policy meeting of the year on Dec. 12-13.

Manufacturing Slows a Bit

Manufacturing sector’s growth slowed in October from the previous month, when it hit the fastest pace in 13 years, but signaled the economy remained on firm footing after disruptions from two major storms, an industry report showed on Wednesday.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 58.7 from 60.8 the month before. The reading was just below expectations of 59.5 from a Reuters poll of 73 economists.

A reading above 50 indicates expansion in the manufacturing sector and a reading below 50 indicates contraction. The employment index fell to 59.8 from 60.3 a month earlier.

The component on new orders slipped to 63.4 from 64.6. The prices paid index declined to 68.5 from 71.5.

The manufacturing sector is on track to grow for another 12 months as demand remains strong and inventories and deliveries have been crimped by Hurricane Harvey, Timothy Fiore, chair of the manufacturing group at the Institute for Supply Management, said on Wednesday.

Auto Sales Mixed

Major automakers posted mixed new vehicle sales in October, though America’s love affair with high-margin pickup trucks and SUVs was unrelenting as passenger cars continued to be abandoned for larger, more comfortable vehicles.

General Motors reported an overall sales drop of 2.2 percent for the month, with consumer sales down 6.6 percent. High-margin pickup truck, SUV and crossover sales all increased.

GM reduced its inventory of unsold vehicles in the month by 7,000 vehicles to 813,000. The automaker has been whittling away at its large volume of unsold vehicles, a source of concern for the market. GM had advised that its inventory would rise in October.

GM slightly reduced consumer discounts as a percentage of the average transaction price, to 13.5 percent from 13.7 percent in the third quarter.

Industry experts believe consumer discounts in excess 10 percent of the average transaction price are unhealthy for the market as they erode resale values and are unsustainable in the long term.

Industry consultants J.D. Power and LMC said last week that based on preliminary sales numbers including October, discounts have exceeded 10 percent in 15 of the last 16 months.

Ford posted a 6.2 percent gain in vehicle sales in October, driven largely by a 15.9 percent jump in sales of its popular, high-priced F-Series line of pickups. Strong demand pushed the average price tag for an F-Series truck up $4,000 from the previous October to $47,300. High-margin pickup trucks were a dominant factor in the better-than-expected results. At the same time, Ford’s low-margin fleet sales rose 14.6 percent in October.

Fiat Chrysler reported a 13 percent decline in new vehicle sales. The automaker’s sales to consumers were down 4 percent, while fleet sales slid 43 percent, in line with the company’s strategy to reduce low-margin sales to car rental agencies.

Nissan sales increased 8.4 percent for the month, driven by a 12.9 percent jump in pickups, SUV and crossover sales. Sales of its popular Rogue crossover model rose 43 percent during October. However, sales at Nissan’s luxury Infiniti brand fell 8.1 percent, driven largely by a 16.2 percent drop in luxury sedan sales.

Construction Spending Up

Construction spending was unexpectedly higher during September, as a surge in public construction outlays offset the third straight monthly decline in investment in private projects.

According to a report released Wednesday morning by the Commerce Department, construction spending increased 0.3 percent to $1.22 trillion. However, August’s construction outlays were revised down to show a 0.1 percent gain instead of the previously reported 0.5 percent increase. Year-over-year spending increased 2.0 percent on a year-on-year basis.

During September, investment on private construction projects fell 0.4 percent after slipping 0.1 percent in August. It was the third straight monthly drop in private construction outlays and reflected a 0.8 percent decline in spending on private nonresidential projects. Spending on nonresidential projects in September was the lowest since April 2016.

Spending on nonresidential structures has now declined for four consecutive months. Spending on oil drilling has been slowing in recent months amid moderate gains in oil prices and ample crude supplies. Spending on residential structures was unchanged in September.

The data could impact the government’s gross domestic product estimate for the third quarter. The government’s advance estimate put economic growth at a 3.0 percent annualized rate for the quarter, with both residential and nonresident structures subtracting from output.

In September, outlays on public construction projects rose 2.6 percent after rising 0.7 percent in August. Spending on state and local government construction projects climbed 2.5 percent. Federal government construction spending soared 3.4 percent.

ADP Forecasts Hiring Rebound

According to a forecast released Wednesday morning by ADP, companies added the most workers in seven months in October as hiring rebounded from an 11-month low set in September stemming from Hurricanes Harvey and Irma.

The ADP National Employment Report indicated that private employers hired 235,000 workers last month, exceeding a median forecast of 200,000 among economists polled by Reuters.

Domestic private payrolls in September were revised down to an increase of 110,000 from the previous 135,000. The report is jointly developed with Moody’s Analytics.

“This labor market is tight and is destined to be tighter,” Mark Zandi, Moody’s Analytics chief economist said on a conference call with reporters.

The ADP figures come ahead of the Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.

The unemployment rate is forecast to remain at 4.2 percent.

Zandi said the government’s jobs readings in September and October would show larger swings than those from ADP because it uses a different method to count workers affected by the storms.