Before The Bell
It was a tale of two halves on Wall Street yesterday as investors sought to push the stock market higher for the third day in a row yesterday morning. And the Street found some early success in that regard, as anxious traders awaited the 2:00 PM (EDT) monetary statement by the Federal Reserve. Consequently, in the first few hours of the session, traders expecting the bank to reaffirm its commitment to an accommodative monetary policy, lifted equities nicely higher, with the Dow Jones Industrial Average rising by some 200 points after the first 90 minutes.
The market then would drift along for another three hours, or until the Fed concluded its FOMC meeting. At that time, the bank affirmed the obvious that it would keep interest rates low until 2023. Initially, that was what the Street had wanted to hear, as the market almost always applauds low interest rates as they are conducive to keeping financing costs at attractive levels, which, in turn, boosts corporate earnings. Not surprisingly, equities rallied further after the Fed statement was issued. In all, the Dow would jump almost 370 points, to 28,364. Things were strengthening elsewhere, to a degree, as well.
However, the market could not sustain its winning way, as the tech group again sold off, with several of the major players in this notoriously volatile sector taking a rather sharp hit, including Tesla (TSLA). This selloff came in spite of the Fed suggesting that it would keep rates where they are for years. Inflation is simply too low and unemployment too high for the lead bank to tinker with borrowing costs anytime soon. Meantime, in non-Fed news the retail sector disappointed as the U.S. government reported retail sales rose just 0.6% in August, below both expectations (1.0%) and July's gain of 1.2%.
In commodity movements, meantime, oil prices increased on reports of U.S. stockpiles falling by 9.5 million barrels last week. West Texas Intermediate jumped as much as 5% during the day to just above $40 a barrel. As for the market, after its initial post-FOMC bounce, stocks began to wilt, with the Dow beginning a descent that would almost wipe out the day's gains. That was similar to what had transpired on Tuesday. However, it was the NASDAQ where the late selling was most intense as that index declined sharply late in the day, falling to a concluding loss of 140 points. The Dow would add just 36 points.
The S&P 500 Index also would weaken, although not as severely. Then, in after-hours trading, the equity futures would trend with little direction at first, as traders weighed the Fed statement and the economic realities behind that cautionary stance. Looking ahead now to data at the end of the week, the Conference Board will issue its latest figures on the leading indicators tomorrow and then next week, surveys will be issued on sales of both new and existing homes and we will additionally get news on orders for durable goods.
In the meantime, after last evening's flattish initial action in the futures, the market is signaling that we can expect a moderate retreat in stock prices when trading resumes this morning.
- Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
