Optimism About Fed and Fiscal Cliff Fuels Gains

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Assuming early gains hold, stocks are positioning for a sixth consecutive day of gains, adding credibility to recent predictions that the broader market will reach all-time highs by the end of next year. The primer this morning appears to be optimism over ongoing fiscal cliff negotiations as well as a belief that the Federal Reserve will announce a fourth round of quantitative easing today. Currently, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up by 14 points, or 0.11%, in late-morning trading.

A glass half full
All eyes are on the Fed today, which concludes its two-day policy meeting in Washington. It's widely expected that the central bank will initiate an additional round of quantitative easing to replace the now-expiring Operation Twist. The consensus opinion is that the new monetary program will include $45 billion in monthly purchases of long-dated Treasury bonds. Notably, these purchases will be on top of the $40 billion of mortgage-backed securities that the Fed is already buying each month in its attempt to lower mortgage rates and thus fuel the housing recovery.

There's also a growing sense of optimism that politicians will reach a deal before the country plunges over the fiscal cliff. President Obama and House Speaker Boehner met over the weekend to discuss the matter. They then talked over the phone yesterday. Following these interactions, Boehner noted that he still has "serious differences" with the president over the latter's desire to raise tax rates on corporations and the richest Americans.

According to Jamie Dimon, the chief executive officer of JPMorgan Chase (NYSE: JPM  ) : "We are one decision away from restoring our fiscal and moral authority from around the world. Let's just do it." Dimon estimates that a resolution to the fiscal cliff would free up the U.S. economy to grow at a 4% rate next year and contribute to monthly job creation figures of 200,000 or more. "We shouldn't take the risk [of going over the cliff]," Dimon noted. "I think it's a big deal that we do it right because it can save jobs, get the country going again, return confidence both in the United States and globally."

Today's top corporate news
In terms of individual stocks, Warren Buffett's Berkshire Hathaway (NYSE: BRK-A  ) announced today that it will buy back $1.2 billion of its own shares -- that equates to 9,200 shares at $131,000 each. The seller is the estate of a "longtime shareholder" that the company didn't identify. Berkshire made news last year when it announced that it would repurchase shares anytime they traded for less than 110% of book value. Some are interpreting today's repurchase to mean that the bar has been raised to 120% book. Shares of Berkshire are up 2.5% on the news.

Shares of Costco (NASDAQ: COST  ) are also up today after the warehouse retailer announced quarterly earnings that beat analysts' estimates. Same-store sales excluding membership fees rose 7% on a year-over-year basis. Meanwhile, revenue from membership fees, the primary source of Costco's earnings, increased 14.3%. While analysts were expecting a slightly higher growth in the latter figure, as it grew 18% in the preceding quarter, the company reported that a recent 10% increase in membership fees had little to no impact on renewal rates. For the quarter, the company earned $0.95 per share compared to an average analyst estimate of $0.93 per share.

With respect to Dow stocks, Hewlett-Packard (NYSE: HPQ  ) is the blue chip index's best-performing component, up 2.1% in midday trading. Shares in the technology giant have struggled since its last quarterly earnings report, when it announced a multibillion-dollar charge-off related to an earlier acquisition. Alternatively, shares of Wal-Mart (NYSE: WMT  ) are headed lower, down 2.3%. Retailers are currently in the midst of the heaviest shopping season and are feeling the effects of the uncertainty surrounding the fiscal cliff.

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10/25/2016 4:00 PM
BRK-A $215249.96 Down -250.04 -0.12%
Berkshire Hathaway… CAPS Rating: *****
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JPMorgan Chase CAPS Rating: ****
WMT $69.36 Up +0.17 +0.25%
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