After The Close
The stock market started in the red today, ahead of the U.S. Federal Reserve meeting as traders waited for the outcome and the accompanying Fed monetary statement. The Dow Jones Industrial Average was lower by as many as 93 points in early action, while the other indices followed. The composites bounced for a brief spell, halving the losses, before reverting back to the original lows for much of the early afternoon. Then, the U.S. Federal Reserve concluded its Federal Open Market Committee meeting. It reduced interest rates by 25 basis points, and left the door slightly ajar for more rate cuts this year, though this is dependent on upcoming economic data. The market had been pricing in additional rate cuts in the coming months, and stock prices quickly moved lower after the announcement. At this point, the Dow fell by as many as 212 points. Still, the market caught a bid in the final portion of trading when Chairman Powell held his press conference. This move higher caught some steam, and produced a rally that erased the day’s losses. Overall, the Dow was higher by 36 points and the S&P rose one point.
Even with the move higher, market breadth was rather negative, favoring decliners over advancers by a 1.7-to-1.0 ratio. Financial stocks were among the best performers of the day, while energy equities were among the weakest.
In commodity news, oil prices fell today as a build in crude oil inventories dampened supply worries in light of the attack on Saudi Arabia. Too, it was reported that the outage will not be as big as predicted.
Meantime, U.S. Treasury bond yields were a mixed bag, as some short-term rates increased a bit while longer-date ones declined. This flattening of the yield curve is normally a negative for financials’ earnings. The VIX Volatility Index finished near breakeven levels after spending most of the day in the green.
Looking ahead, tomorrow will have a good amount of economic data released. This includes initial jobless claims and the Energy Information Administration’s weekly report on natural gas inventories. Too, the Philadelphia Fed survey will be released, showing that region’s manufacturing growth. Too a few companies are expected to report quarterly results. Overall, we think that trading tomorrow will be guided by any trade developments between the U.S. and China and any after-effects from today’s interest-rate policy decision.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Late last week, the focus for Wall Street was trade, as both sides were getting ready for the U.S.-China trade talks next month; then on Monday, the high priority item for the Street was oil, following the major attacks on the Saudi oil fields over the weekend; and yesterday, the preoccupation for investors and pundits alike was the Federal Reserve. That is because the central bank was meeting to decide whether and by how much to cut interest rates. The banking authorities will render their verdict on rates this afternoon. Expectations are that the Fed will reduce rates by 25 basis points at that time.
So, the market began the day hesitantly, with the key indexes all backtracking modestly at the open. To be sure, the setbacks were mild, with the market soon hovering around the flat-line. All told, as we hit the noon hour in New York, the Dow was still off about 25 points, while the S&P 500 and the NASDAQ each were grudgingly in the plus column. As to the Fed, the drama is focused on just how strongly the central bank will signal that it is ready to reduce rates again later this year. At the same time, pressure on stocks was being exerted by fears that the jump in crude prices could lead to some global economic weakness.
In other news, the Commerce Department reported that industrial production had gained nicely in August, rising 0.6%, after edging down by 0.1% in July. Expectations had been for a rise of just 0.2% for the latest month. Meanwhile, capacity utilization at the nation's factories also ticked higher, rising by 0.4% to 77.9%. This positive report helped to mollify investors a bit, as it countered much of the economic data that continued to suggest that the economy was slowing. The market then continued to drift aimlessly as the morning concluded and the afternoon got under way.
The stock market would continue to tread water, occupied by concerns about the Saudi attacks, the unknowns about trade, and an unsettled feeling about the Federal Reserve gathering. The tight trading range, with the NASDAQ up grudgingly and the Dow lower seemed to reflect this uneasiness ahead of the interest rate decision and accompanying monetary statement. Few groups were gaining broadly, while there was some weakness in the large banking houses on the eve of the Fed interest rate decision. This checkered trading pattern would end as the session neared its conclusion and the Dow went narrowly positive.
The market then would continue to strengthen modestly, with the Dow staying in the win column into the close. At the conclusion of this uninspiring session, the Dow Industrial Average would finish ahead by 34 points; the S&P 500 would add eight points; and the NASDAQ would climb 32 points. However, the smaller-cap indexes would ease somewhat, as would oil prices after Saudi Arabia said it could be completely back on line within a month. Finally, oil prices sold off after the big rise on Monday and Treasury note yields eased, closing at 1.81% on the 10-year note.
Looking out on a new day now and peering overseas, we see that stocks were mainly in the loss column overnight in Asia, while in Europe, the leading bourses are trending slightly positive at this hour. Also, oil prices are easing back again and Treasury note yields are lower. Looking out at our futures, the early read is slightly negative. Of course, how the session ends likely will be dictated by the Fed meeting and the accompanying interest rate and monetary statement. The market is somewhat anxious and we could swing sharply depending on the language employed by the nation's central bank.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
