After the Close
Stocks put in a somewhat volatile session, as traders looked to the Federal Reserve for guidance. Specifically, equities moved sideways for much of the morning, but then headed sharply lower in the afternoon. The market did recover briefly late in the day, but this effort was ultimately unsuccessful. At the close of trading, the Dow Jones Industrial Average was down about 119 points; the S&P 500 Index was off 18 points, and the NASDAQ was lower by 27 points. Market breadth was decidedly negative, as losers easily outpaced winners on the NYSE. All of the major stock groups lost ground, with sizable losses in the energy and materials issues. Of note, the technology names managed to buck the downtrend earlier in the day.
While there were numerous economic reports issued today, all eyes were on the Federal Reserve. This afternoon, the central bank voted to institute a quarter point hike in interest rates, responding to healthier economic conditions. The Fed also indicated that there would likely be three rate hikes to come in 2017. Although most traders anticipated that the Fed would act, some may have been surprised with its guidance and general tone. Meanwhile, it should be noted that several rate hikes were initially projected for 2016, but were not implemented. This suggests that the central bank is quite flexible and will be likely to act only if warranted. Tomorrow will be a busy day for economic news. We will get a look at consumer prices for the month of November, the latest weekly initial jobless claims, as well as some regional economic reports.
Finally, in the corporate space, things were relatively calm today. Tomorrow we will receive reports from some technology companies, as Adobe (ADBE) and Oracle (ORCL) release results.
Technically, stocks have been holding up relatively well lately. However, with the Fed ready to take action, it remains to be seen if the bulls can maintain their hold on the market. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:00 PM EST
Most U.S. equities traded lower on Wednesday morning, as investors wait for the afternoon announcement from the Federal Reserve on interest rates. The prevailing assumption is that the central bank will enact a 25-basis-point increase. Looking out further though, many are clamoring for a better-defined plan for next year in hopes that the Fed will implement several raises throughout 2017.
Market watchers have also expressed a desire to hear Chair Janet Yellen assess the proposed policies of Donald Trump. The President-elect has made clear his intentions to reevaluate trade agreements, bolster national security spending, overhaul the healthcare system, and invest heavily in infrastructure. Speculation on the impact of these plans has accordingly sent stocks in certain industries to historically high trading levels, while miring some others in uncertainty. A definitive reading from the Fed would offer valuable insight to investors who have spent more than a month attempting to ascertain the economic implications, positive or negative, of Mr. Trump’s hegemony.
Also this morning, uncertainty in the global energy market led to a decrease in oil prices. OPEC warned non-member nations that the crude surplus would increase if a production cut is not implemented. Moreover, a surprising update from the American Petroleum Institute revealed that U.S. crude stockpiles grew 4.7 million barrels last week, versus an expected 1.6-million-barrel decline. As the noon hour approached in New York, U.S. crude had shed more-than 1% in per-barrel value on the day.
Meanwhile, the November report for U.S. industrial production showed that output dropped 0.4 percent in November. The results, which gauge the productivity of the countries factories, mines, and utilities, likely reflect the seasonally warm weather in many parts of the country. This led to less heat being used, and subsequently lower industrial growth. The typically volatile month-to-month automotive production also slipped, albeit less appreciably. Regardless of the surprise, we think the greater economy has shown solid enough recovery to warrant regular rate hikes over the course of 2017.
As we pass the midday hour, each of the three major indices is lower. Nine of the ten market sectors also registered losses in the morning hours, with the number of declining issues nearly doubling the advancing tally. Still, the afternoon’s trading will largely center on the Fed’s decision. The committee will release its economic and interest rate forecasts at 2 P.M. EST, with Ms. Yellen speaking to the press soon thereafter. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
As far as Wall Street is concerned, it is partly about the Federal Reserve this week, as the nation's central bank is holding its last two-day FOMC meeting of the year, with this gathering concluding at 2:00 PM (EDT) today. Under discussion is the Fed's monetary policy, with the bank highly likely to vote to raise interest rates by one-quarter of a percentage point at today's confab. That would be the first hike in a year and just the second in nearly a decade. Somewhat better economic metrics, higher oil prices, the potential for inflation to increase, and a buoyant stock market are likely behind the prospective rate increase.
Regarding the stock market, itself, the Street has been on a tear since the election, as one record after another falls in rapid succession, with the three principal large-cap indexes, the Dow Jones Industrial Average, the Standard and Poor's 500 Index, and the NASDAQ at all-time highs currently, with the Dow, in fact, pressing ever closer to 20,000. In all, that 30-stock composite soared well past 19,900 yesterday morning, However, the star yesterday morning, and throughout the day, was the tech-laden NASDAQ, which jumped better than 1% early in the day en route to another all-time high.
Meanwhile, the stock market got off to this strong start yesterday following a mixed-to-lower session to begin the week on Monday. Traders, it would seem were keeping one eye on the Federal Reserve and another on Dow 20,000. Helping the early advance was a strong gain in shares of IBM, as that old-line technology stalwart drove to another yearly high. Other technology plays, both on the Dow and on the NASDAQ, also helped fuel the rally by a sector that has been relatively out of favor since the election. Wall Street, it would seem, is celebrating the incoming administration and the changes that are likely to emanate from it.
Then, there is the Fed. It seems almost a foregone conclusion that the bank will announce a rate increase this afternoon. What's more, it is likely that the Fed will raise rates at least three times in 2017, especially if the economy continues to strengthen as we believe it will, and the new administration adopts an ambitious infrastructure program and announces tax cuts and lessening regulations. Also pointing toward somewhat higher borrowing costs in the months to come is the trend in Treasury yields. On point, the yield on the 10-year Treasury note is now just shy of 2.50%, while the yield on the 30-year bond is up at 3.15%.
After this early run to higher ground, the equity market headed into the first part of the afternoon with plenty of momentum, and using this momentum secured additional gains, with the Dow, for example, rising past 19,950 for a brief span before backing off somewhat. Still, formidable gains persisted into the close, with the major large-cap indexes all securing record closing highs. In fact, it might not take much, perhaps a positive interpretation of the Fed's action and accompanying statement today to make further notable progress.
So when all of the books were settled, the Dow had managed an increase of 115 points; the S&P 500 Index was better by 15 points; and the NASDAQ, the star for much of the day was in the black by a stellar 51 points. Still, there was an uneven quality to the advance, as strong as it was in the large caps, as the small-cap Russell 2000 Composite actually eased back slightly on the day. For the most part, though, the market retained a solid tone and enters the midweek session seemingly ready for more fireworks.
Looking out at a new day now, and ahead of the Fed, the markets in Asia were largely mixed overnight, while the bourses are pressing slightly lower in Europe thus far this morning. Our futures, meantime, are mixed at this hour as Wall Street awaits the Fed and perhaps another run at Dow 20,000; Treasury yields are off a few ticks; and oil prices are seeing some profit taking. In the meantime, data issued just minutes ago showed that retail sales rose by just 0.1% in November, but by 0.2% when we strip out autos. Still, both figures were light, as expectations had been for gains of 0.3%. October sales were up 0.8%. What was not light were producer prices, with the headline number jumping by 0.4%. That could further pressure the Fed to raise rates this afternoon. Interestingly, the bond market is focusing more on the weak retail number than the rise in inflation, as yields have ticked down a bit further from 2.44% to 2.43% on the 10-Year Treasury note. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
