After The Bell - Trading was choppy on Wall Street for most of the day, as the investment community awaited word from the Federal Reserve following the conclusion of its two-day monetary policy meetings. Also adding to the early volatility were the lingering concerns about the financial crisis in Greece, some mixed economic news on these shores, as well as positive earnings news from the technology industry. Then after the Fed released its statement on the economy and made known its latest monetary policy intentions, selling picked up aggressively. Investors appeared concerned that the central bank’s latest attempt to jumpstart the economy (dubbed “Operation Twist”) would not be sufficient. At the closing bell, the Dow Jones Industrial Average and the S&P 500 Index were down 284 and 35 points, respectively. The NASDAQ fared better, helped by a few positive quarterly earnings reports in technology sector, but still ended the session well in the red—losing 52 points.
The Federal Reserve’s latest monetary policy statement indicated that economic growth remains slow. Areas of concern continue to be the weak labor market—the unemployment rate is still elevated—and the modest pace of household spending. The Fed also noted that investment in nonresidential structures is still weak and the housing sector remains depressed. Given these difficulties, the Federal Reserve announced plans to sell $400 billion of its shorter-term securities to purchase longer-term holdings. At first blush, it appears that these actions, at best, would only provide a modest spark to the flagging domestic economy. The heavy selling action following the announcement showed that investors were none too happy with the Fed’s decision—most traders were hoping for some aggressive actions on the part of the lead bank. But as we have noted in our recent economic commentaries, such limited actions on the part of the Fed should not have come as a surprise as it had already used most of the bullets in its arsenal.
Meanwhile, the economic news on these shores once again did not inspire confidence among investors. A half hour after trading commenced, the National Association of Realtors said existing home sales rose almost 8% in August. However, as we noted in our midday report, the news was not as strong it may appear at first glance, as a good portion of the sales were made up of distressed properties and speculative purchases. We don’t expect a meaningful recovery in this battered sector until a notable improvement is seen in the labor market.
Elsewhere, investors continued to keep close tabs on what is happening over in Europe, particularly the handling of Greece’s sovereign-debt problems. The latest report said Greece will suspend more civil servants than originally planned and impose new pension cuts as part of more austerity measures the government hopes will persuade international creditors to continue providing bailout loans to the debt-saddled nation. In recent days, Germany has openly questioned whether it should help Greece as it believes that the country is not doing enough to cut its substantial deficit. Such thinking has spooked already nervous investors—Europe’s major bourses finished sharply lower today.
Meantime, there was some good news to report from the corporate world, mostly in the technology area. Solid earnings reports from Oracle (ORCL) and Adobe Systems (ADBE) initially boosted the sector and had the tech-heavy NASDAQ in positive territory, until some broadbased selling following the aforementioned FOMC statement wiped away the earlier gains. All 12 of the major sectors finished in the red, with notable declines in transportation, basic materials, capital goods, financial, and energy stocks. Late in the day there was clearly a desire for safe-haven securities, which boosted demand for bonds—the yield on the 10-year Treasury note finished the day down seven basis points, at 1.88%. William G. Ferguson
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
12:30 PM ET - The U.S. stock market is looking for direction today, as traders await news from the Fed. Many expect the lead bank to announce additional easing measures, now being referred to as “Operation Twist”. These efforts, if implemented, would consist of targeted asset sales and purchases, aimed at easing long-term interest rates. Many on Wall Street are skeptical that such a program would effectively solve the numerous problems plaguing the economy.
Elsewhere, the economic news released this morning was mixed. According to the National Association of Realtors, existing home sales rose almost 8% in August. But the news was not as strong it may appear at first, given that a good portion of the sales were made up of foreclosures and speculative purchases. Tomorrow, we get a look at the jobs situation again, with the release of weekly initial and continuing unemployment claims data.
Meanwhile, traders are digesting today’s corporate news. Shares of tech giant Oracle (ORCL) are trading higher, and likely supporting the NASDAQ. The company posted better-than-anticipated results. Also in technology sector, Wall Street was happy with a report from Adobe (ADBE), as that stock is gaining today. Nonetheless, the outlook was less favorable for Walter Energy (WLT). The coal company warned that production will likely be less than expected. That stock is trading lower. Also, another coal company Alpha Natural Resources (ANR) lowered its guidance.
Meanwhile, the U.S. markets are getting little help from the situation in Europe. The German DAX closed off about 2.5%, with less severe losses on the CAC-40, and FTSE-100. European finance officials continue to monitor the situation in Greece, which will likely require another round of aid to avoid default. Further, fears of contagion remain at the forefront, as many large financial institutions are holders of Greek debt.
At just past noon in New York, the Dow Jones Industrial Average is down 43 points (-0.38%); the S&P 500 Index is off four points (-0.40%); but the NASDAQ is up 12 points (0.47%). Market breadth is mixed. Decliners are ahead of advancers on the NYSE. However, the figures are about even on the NASDAQ. Essentially, all of the major market sectors are in negative territory. There are losses in the transportation issues, led lower by Fed Ex (FDX) and Norfolk Southern (NSC). The basic materials sector is also headed lower, with declines in Freeport Mc-MoRan (FCX) and Cliff Natural Resources (CLF). There is some strength in the technology group, with gains in Hewlett-Packard (HPQ -Free Hewlett-Packard Stock Report) and Apple (AAPL). - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Opening Bell - Volatility was again the order of the day on Wall Street yesterday, with the latest session featuring a definitive resumption of the latest uptrend for much of the day, and an abrupt selloff near the close on renewed jitters about the euro zone and uneasiness ahead of today's conclusion of the latest FOMC meeting.
Specifically, the stock market--following a sharp runup last week that saw the equity market post gains for each of the five days, and then a retreat to start the new week--featured a strong rally for much of the day yesterday. In fact, at one point, the 30-stock Dow Jones Industrial Average had raced to a gain of almost 150 points. Late in the day, however, fresh concerns surfaced about Greece, as reports indicated that this troubled nation's negotiations with international inspectors could drag out and possibly fall apart. That rumor clearly dampened enthusiasm for stocks. And virtually all of the day's gains--and in some cases more than that--disappeared in short order.
In all, the Dow lost all but eight points of that early advance, while the NASDAQ, a 30-point gainer at one point, fell into the red by 23 points. The small-cap Russell 2000, meantime, which had sped to an early gain of eight points, wound up the day in the minus column by 12 points. Decliners, meanwhile, led gainers on both the Big Board and the NASDAQ, with the latter seeing a negative ratio of more than two-to-one. Also, new highs easily led new 52-week lows on both exchanges, in what was a weak day for stocks, notwithstanding the modest increase in the Dow.
In truth, the news from Greece has been so fast and furious, and often so contradictory that it is hard to separate fact from fiction, suggesting to us that investors may be watching the goings on there too closely. Still, a possible default is a serious matter, especially if there starts to be a domino effect involving other debt-encumbered nations on the Continent. Then, of course, there is the perennial angst ahead of a Federal Reserve meeting's conclusion. This latest FOMC meeting will end this afternoon, at 2:15 PM (EDT), with some likely announcement of further quantitative easing, most likely involving an intended reduction in long-term interest rates. That likely move, dubbed ``Operation Twist. '' would involve shifting money out of short-term securities and into longer-term holdings--hence the name Operation Twist. This plan could lower Treasury yields further, in a move that is designed, at least in part, to lend a hand to the troubled housing market. Note that mortgage rates are keyed off of 10-year Treasury notes.
Recently, it should be noted, Fed meetings have been more contentious, as some members have been less supportive of further easing maneuvers, reasoning that the long-range inflationary effect of such additional accommodation is too great to take on such risk. Federal Reserve Chairman Ben S. Bernanke, however, is likely to again opt for such easing, and his advocacy should again carry the day. At the same time, some in Congress are lobbying the Fed Chairman against such a move, arguing, along with some Fed hawks, that this presumed move could escalate the risk of higher inflation. The doves on the Fed argue, instead, that the risks of a recession--now believed by consensus to be about one in three--is simply too great to sit still. Our guessing is that the recession risk is closer to 50%, but we also sense that the added inflation risk of additional easing may be too great, at this juncture, to forge ahead too aggressively on the monetary side.
Meanwhile, after a higher day in Asia, stocks are faltering again in Europe this morning, while our own futures are rather flattish after a reversal of some early gains. That should set up a mixed start in less than an hour from now. In addition to the Fed, investors will also be looking closely at the housing market again today, as the National Association of Realtors will issue results on sales of existing homes during August. A slight decline in that metric is our expectation. Yesterday, we saw a falloff in housing starts during the latest month. A gain in August starts had been the consensus forecast. - Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any companies mentioned.