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Nasdaq Closes at Record on Stimulus Talks, Fed Bond Buys Pledge

The Federal Reserve will maintain monthly bond purchases until it sees 'substantial further progress' in the labor market and inflation.

Stocks finished mixed Wednesday on optimism over stimulus talks in Washington and after the Federal Reserve said it would maintain monthly bond purchases of at least $120 billion until it sees “substantial further progress” in the labor market and inflation.

The Nasdaq was up 0.50%, closing at a record high of 12,658, while the S&P 500 closed up 0.18% to a near-record 3,701. The Dow Jones Industrial Average ended down 44 points, or 0.15%, at 30,154.

Stocks ended higher Tuesday, putting an end to the S&P 500's four-session losing streak.

“The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the committee’s maximum employment and price stability goals,” the Federal Reserve said in a statement Wednesday.

The central bank, at its last meeting of 2020, also held interest rates steady in a target range of 0% to 0.25%.

The Fed also adjusted its forecast for U.S. economic growth in 2021, saying it expects gross domestic product to expand 4.2% vs. previous expectations of 4%.

Fed Keeps Rates on Hold, Vows Near-Zero Fed Funds Through 2023

The Fed's announcement came just as confidence was growing that lawmakers in Washington would reach a stimulus agreement.

Negotiations in Congress on a coronavirus relief bill have dragged on for weeks, but progress was made during two rounds of meetings between House Speaker Nancy Pelosi and bipartisan congressional leaders.

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Senate Majority Leader Mitch McConnell, following a late-night negotiating session Tuesday with Pelosi, told reporters he was "optimistic that we’re gonna be able to complete an understanding sometime soon.” Senate Democratic leader Chuck Schumer and House Minority Leader Kevin McCarthy also took part in the talks, as did Treasury Secretary Steven Mnuchin by phone.

Bloomberg reported that the stimulus package being worked on by congressional leaders includes payments to individuals and supplemental unemployment insurance, but excludes liability protections and direct aid for state and local governments.

Four people briefed on the matter said the coronavirus relief bill is expected to be less than $900 billion.

"The Federal Reserve is in a very awkward position because Congress has failed to pass more fiscal stimulus. The Fed knows it's the only game in town when it comes to keeping the economy afloat as long as there are still threats of more Covid-related lockdowns," said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence. 

"While financial conditions are as loose as ever, it’s an exercise in futility for policymakers to do more when so much has already been done to stimulate the economy, at least on the monetary policy side" she added.

U.S. retail sales in November fell 1.1% as consumers dramatically scaled back on their purchases and limited holiday shopping as the coronavirus pandemic triggered new business restrictions and outright closures, snapping a six-month stretch of retail sales growth.

"It’s truly the darkest before dawn with a brutal retail sales reading like this," said Mike Loewengart, managing director of investment strategy at E*Trade. "Worse-than-expected numbers paint a picture of the hard-hit consumer as we capture holiday shopping in November. 

"Sustained spending remains key for the recovery, and this pullback only underscores the critical need for stimulus for consumers and businesses alike," he added.

Tilray  (TLRY) - Get Tilray Brands, Inc. Report shares ended higher, while Aphria  (APHA) - Get Aphria Inc Report finished slightly off Wednesday after the companies agreed to merge, creating the biggest cannabis company.