Before The Bell
After a notable Monday-Tuesday reversal in the stock market, in which the leading averages went up then down appreciably in back-to-back sessions, Wall Street commenced the middle trading day of the week with initial losses. Dragging stocks down at the outset were concerns about new COVID-19 infections following the reopening of much of the nation's businesses. Also, yesterday marked the conclusion of the latest two-day Federal Open Market Committee meeting, and there was some uneasiness ahead of that gathering's end.
However, after the Dow Jones Industrial Average quickly fell back by more than 300 points, that index and the other composites found a floor, and by 11:00 AM (EDT), they were rallying, with the blue chips gradually paring their deficit. That comeback would then continue into 2:00 PM (EDT) when the Fed adjourned with a unanimous vote to keep interest rates at their current record low levels. Moreover, in its accompanying monetary statement the FOMC suggested that it would hold rates at these levels until 2022.
Initially, the market liked the Fed's statement and rate decision. But after that brief euphoria, which helped lift the Dow into the green for about a half hour and push the NASDAQ, already strongly positive, to session highs with a gain north of 130 points, things settled back. In fact, some reassessment took place with investors sensing that the Fed stance was a tacit admission that the economy has lingering structural deficiencies that could well last for some time. That change in market sentiment was a game changer, for one day at least.
With this in mind, the market trended lower into the close, with the Dow's loss resuming within some 30 minutes of the Fed meeting's conclusion. That pullback would encompass the Dow, the S&P 500, and the Russell 2000. Only the NASDAQ would be spared, but it would lose half of its peak gain. All told, the Dow would surrender 282 points. What helped the NASDAQ once again was strength in some key tech names, including Apple Inc. (AAPL), Amazon.com (AMZN), and Microsoft (MSFT). Each of these stocks, in fact, set an all-time high yesterday.
Meanwhile, in economic news, the Consumer Price Index fell by 0.1% in May. That was worse than the unchanged reading generally expected by economists. Still, for now, at least it seems as though we have successfully dodged the deflation bullet that some had feared. Finally, after the close yesterday, the equity futures fell back rather sharply as investors reassessed the economic outlook after the Fed meeting and the reopening of much of America. As to the market indicators this morning, they point to a sharply lower opening when trading resumes.
– Harvey S. Katz, CFA
At the time of this article's writing, the author had positions in AAPL.
