Stocks rose Thursday after dipping briefly following Federal Reserve Chairman Jerome Powell’s remarks about shrinking the central bank’s balance sheet. Treasury yields advanced with the dollar, and West Texas crude continued its bull market surge past US$52 a barrel.

The S&P 500 Index rallied as gains in utilities, industrials and real estate shares overwhelmed weakness in retailers sparked by concerns about a sales slowdown and fears about the potential consequences of the ongoing partial government shutdown. Alcohol distributor Constellation Brands Inc. rebounded from Wednesday’s decline to lead the benchmark on positive comments from analysts at Goldman Sachs Group Inc. and Guggenheim Securities. Macy’s Inc. plunged 18 per cent, making it the biggest decliner, after reporting disappointing seasonal sales and earnings.

“The stronger retailers keep winning, the weaker retailers not so much,” said Hank Smith, co-chief investment officer at Haverford Trust. “I do not think it is a reflection on the consumer. The consumer is strong right now. We’ve had the best wage growth in this cycle, unemployment trends continue to be positive, just look at weekly jobless claims.”

But to equity investors, Powell’s cryptic comments at the Economic Club of Washington, D.C. about returning the Fed’s balance sheet to a normal level -- which were taken to mean that the central bank will be reducing it aggressively in the near future -- were the attention grabber.

“When asked where the Fed’s balance sheet should go from here, he said it should be ‘substantially smaller’ than it is now,” Peter Boockvar, the chief investment officer of Bleakley Financial Group, wrote in an email. “I guess we’ll then wait for his next speech so everyone can then ask him what ‘substantially smaller’ means.”

Markets Bet on Patience From Powell and the Fed

Jan.10 -- Mandy Xu, equity derivatives strategist at Credit Suisse, Dan Skelly, head of equity model portfolio solutions at Morgan Stanley, and Greg Staples, co-head of fixed income at DWS Investment Management, examine market expectations that the Federal Reserve will practice patience on monetary policy. They speak with Bloomberg's Jonathan Ferro on "Bloomberg Markets: The Open."

With the S&P 500 having gained more than 5 per cent in a week following dovish comments on interest rates from the Fed, the lack of any concrete details from trade discussions between China and the U.S. has left few catalysts to drive equity benchmarks significantly higher. And as the fight continues over the proposal to build a wall along the Mexican border, which President Donald Trump visited Thursday to rally support for his plan, worries about the impact of a prolonged government shutdown in America are starting to take hold.

“In the beginning, we hadn’t gotten much investors calling us or talking about this as a risk,” Mandy Xu, Credit Suisse’s chief equity derivatives strategist, said on Bloomberg Television. “But now as it drags on, definitely we’re seeing more concern.”

The Stoxx Europe 600 Index and U.K.’s FTSE 100 Index rose slightly after Jaguar Land Rover said it plans to slash 4,500 jobs worldwide in response to a sales slowdown caused by Brexit. The euro struggled for traction after underwhelming economic data from France. Japanese stocks paced declines across many Asian markets, although the MSCI Asia Pacific Index declined as China inflation figures showed slowing growth. The offshore yuan climbed to the strongest since August.

Elsewhere, the pound weakened as British Prime Minister Theresa May mulled options for a Brexit “Plan B.”

Here are some events investors may focus on this week:

Britain’s Parliament this week resumes a debate on the Brexit withdrawal bill, with Prime Minister Theresa May seeking to avoid defeat in a vote set for the week of Jan. 14.

These are the main moves in markets:


The S&P 500 Index climbed 0.5 per cent to 2,596.49. The Stoxx Europe 600 Index rose 0.1 per cent. The U.K.’s FTSE 100 Index added 0.3 per cent. The MSCI Asia Pacific Index fell 0.2 per cent, the first retreat in more than a week. The MSCI Emerging Market Index jumped 0.4 per cent to the highest in five weeks.


The Bloomberg Dollar Spot Index gained 0.3 percent. The euro dipped 0.4 percent to US$1.1499. The British pound declined 0.3 percent to US$1.2745. The Japanese yen fell 0.3 per cent to 108.47 per dollar.


The yield on 10-year Treasuries rose two basis point to 2.7314 per cent. Germany’s 10-year yield slid two basis points to 0.255 per cent, the first retreat in a week and the biggest decrease in more than a week. Britain’s 10-year yield climbed one basis points to 1.274 per cent.


The Bloomberg Commodity Index dropped 0.5 per cent. West Texas Intermediate crude increased 0.3 per cent to US$52.54 a barrel after entering a bull market on Wednesday. Gold fell 0.6 per cent to US$1,286.30 an ounce.