Loading...
 

After The Close - After a two-day rally in the U.S. equity market to start the week, the major U.S. market averages traded in a tight band ahead of the conclusion of the Federal Reserve’s two-day monetary policy meeting this afternoon. Then, after the release of the Federal Reserve’s monetary policy statement at 2:00 P.M. (EDT), which many pundits thought was vague, the major averages bounced back and forth for about an hour. But then as Federal Reserve Chair Janet Yellen spoke to the media, the equity indexes sold off sharply. Prompting the selloff were what investors deemed hawkish comments, specifically with regard to interest rates, from usually dovish Ms. Janet Yellen (see below). 

Overall, it was difficult session for stocks—notwithstanding some attempts by the bulls to pare the losses. The Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index were all sharply lower by the final bell, with nearly all of the damage done in the last hour of trading. The spread between decliners and advancers, which was in favor of the former throughout the day, really tilted that way by the market’s close. We think the selloff was sparked by worries that absent the Federal Reserve’s easy money policies, stocks would lose some of their attractiveness to investors.

From a sector perspective, it was a sea of red ink among the top-10 groups, with even the healthcare and financial groups, which were in demand earlier, succumbing to the selling by the closing bell—though there were some notable individual gainers in those two groups. The biggest laggards were the basic materials, industrials, and utilities sectors. We think the news of further bond-buying tapering by the Federal Reserve—an action that could push interest rates higher—is making utilities less attractive. Higher-yielding fixed-income securities would make for attractive options for income-oriented investors that have had a good deal of their funds in higher-yielding utilities. The yield on the benchmark 10-year Treasury note rose nearly 10 basis points in the latest session.

As noted, the day’s biggest news came from the Federal Reserve. Shortly after 2:00 P.M. (EDT), a statement from the Federal Open Market Committee (FOMC) revealed that the lead bank will cut its monthly bond-buying program by another $10 billion, to $55 billion. In conjunction, the release showed most FOMC voting members favored an interest hike in 2015, and the bank is dropping its promise to hold rates steady “well past the time” the U.S. unemployment rate falls below 6.5%. Chairwoman Yellen also hinted that the period could be as short as six months. That said, the decision to raise the federal funds rate will depend largely on the progress made on the employment front over the next 12 to 18 months. Nevertheless, in addition to its effect on the broader market, the FOMC’s decision to continue tapering pared some of the earlier gains in the homebuilding stocks, which were up sharply at the start of the session after California-based builder KB Home (KBH) posted better-than-expected February-quarter results. Given housing’s sensitive to lending rates, we are not surprised that some of the sector’s earlier gains were pared after the FOMC statement and Ms. Yellen’s comments.

The scope of the cut in the monthly asset purchases was what most market pundits were expecting. But the comments about short-term interest rates possibly being raised by as early as next year threw a monkey wrench into the equation and prompted the heightened volatility that we saw in the market over the final two hours of trading. - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

12:15 PM EDT - The U.S. stock market is taking a pause today, as traders await word from the Federal Reserve. Notably, the FOMC will conclude its two-day meeting this afternoon, with recently installed Chair Janet Yellen offering her first press conference. At just past noon in New York, the averages are largely mixed to slightly negative. The Dow Jones Industrial Average is up about 10 points; the broader S&P 500 Index is flat; and the technology-heavy NASDAQ is down three points. Market breadth also shows a neutral bias to the session, with advancers about even with decliners on the NYSE. Most of the market sectors are down modestly. There is some weakness in the basic materials stocks, with the metals issues declining sharply. The technology area is also struggling, as there is some weakness in the software area. In contrast, the healthcare stocks are advancing, as investors are buying the biotechnology names.

Technically, the market snapped back on Monday and Tuesday, as the buy-the-dip crowd moved in to support equities. Buying on weakness has become the norm lately, and suggests that the bulls are still in control. For now, the S&P 500 Index is back near high ground, which is encouraging. However, it should be noted that trading volumes have been a bit light lately, and a pickup here would suggest a stronger commitment to the rally.

Investors received no major economic reports this morning. However, tomorrow will be a busy day. The employment situation returns to center stage, as the weekly initial and continuing jobless claims are released. The Philadelphia Fed will be weighing in on recent business conditions in that region of the country. We also will get a look at the monthly existing homes sales. Finally, the Conference Board will issue its report on the leading economic indicators.

We received a few important earnings releases recently. After the close of trading yesterday, we heard from Oracle (ORCL). That stock is slipping, after the technology leader issued weaker-than-expected bottom-line results. FedEx (FDX) stock is trading slightly lower, too, after the transportation giant issued a lackluster report. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


-

Stocks to Watch from The Survey Investors are digesting earnings reports from several high-profile companies. Two of the nation’s most prominent software developers, Adobe Systems (ADBE) and Oracle Corp. (ORCL), delivered mixed February-period results. Adobe topped expectations in the most recent interim, while Oracle’s financials missed the mark. Consequently, ADBE stock is up slightly ahead of the bell, while ORCL is trading modestly lower. Other equities indicating weaker openings on earnings news include package delivery giant FedEx (FDX), which was hurt by severe winter weather, renewable energy solutions provider SolarCity (SCTY), and cereal and packaged foods company General Mills (GIS). On the other hand, investors cheered a smaller-than-anticipated loss from apparel and accessories retailer Pacific Sunwear (PSUN), and that stock is up sharply in pre-market trading, as a result. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

Before The Bell - Make it back-to-back wins for the earlier chastened bulls, as those perennial optimists avoided the Monday-Tuesday reversal, which we have often noted and experienced in the past, and booked a pair of wire-to-wire wins, to coin a sports-related term indicating that the stock market opened higher and never looked back, in a repeat of Monday's curative action. All told, the two-day advance has managed to counter most of last week's losses. Indeed, the leading averages are again on the cusp of either multi-year highs or all-time records.

Behind this latest bull run, which has seen the Dow Jones Industrial Average gain 182 and 89 points, respectively, over the first two days of this week, and seen the NASDAQ surge by 53 points, yesterday alone, is some relief that there seems to be more in the way of talking about Ukraine on the part of Russia than fighting. Also, investors took comfort that the latter's annexation of Crimea does not look as though it will devolve into a violent confrontation. Armed with these better feelings about the geopolitical situation, which may or may not prove well founded, the stock market advanced broadly with a large plurality of winning stocks over losing issues on both the Big Board and the NASDAQ. There were clearly few places for the bears to hide.  

Further, there is a sense of relief that the sanctions imposed by the United States and Europe against Russia are thus far limited in scope. This has eased investor fears and is allowing them to again focus on economic releases and earnings. However, there has been little in the way of the latter, but some issuances of note on the economy. To wit, yesterday saw the release of tame inflation data at the consumer level, while we also witnessed reports detailing a flattish homebuilding comparison for February, but a nice gain in building permits, a more forward-looking release. Such figures underpin our contention that the recent slippage on the housing front was little more than a weather-induced pause. Now, with the approach of spring and the recent reduction in mortgage rates, it's possible that we could see some step-up in activity here in the coming months.

As to the rest of the week, we have the conclusion of the latest Federal Open Market Committee meeting this afternoon, with the likelihood that the central bank will leave its record low short-term interest rates unchanged, while it further reduces its bond buying activity. The consensus is that the Janet Yellen-led Fed will pare such bond purchases by a $10 billion a month. Then, tomorrow, we are scheduled to get another key housing metric, when the National Association of Realtors, a large trade group, issues data on sales of existing homes for February. A flat reading is the expectation there. 

As far as today is concerned, all eyes will be on the Fed, as Janet Yellen prepares her remarks to be given as the conclusion of the meeting at 2PM (EDT). But although the central bank and its meeting will dominate the thinking on Wall Street, and perhaps be a big influence on trading, we also now have some earnings data to digest. On point, software giant Oracle (ORCL) issued its results after the market closed yesterday, and the figures were not awe inspiring, to say the least, and that quality stock is indicating a modestly weaker opening when trading resumes in less than an hour from now. Also, this morning, FedEx (FDX) released its quarterly results as well, and here, too, the reception has been a bit cool, although there is no big downward action. 

All told, the markets were essentially mixed overnight in Asia, while in London and Paris, the bourses are tracking a little lower so far this morning. But Germany's DAX is bucking the trend with a notable gain at this time. And over here, the equity futures are pointing to a possible third day in a row of market gains, as they press modestly higher at this hour. - Harvey S. Katz  

At the time of this article's writing, the author did not have positions in any of the companies mentioned.