After turning in a lackluster performance for much of the
session, stocks saw substantial volatility following the Federal
Reserve’s monetary policy announcement Wednesday afternoon. The
major averages initially surged in reaction to the Fed announcement
but pulled back going into the close.
The major averages eventually finished the day mixed. While the
Dow rose 87.37 points or 0.2 percent to 37,903.29, the Nasdaq fell
52.34 points or 0.3 percent to 15,605.48 and the S&P 500 dipped
17.30 points or 0.3 percent to 5,018.39.
The late-day volatility came after the Federal Reserve announced
its widely expected decision to leave interest rates unchanged.
Citing a lack of further progress toward its 2 percent inflation
objective in recent months, the Fed said it decided to maintain the
target range for the federal funds rate at 5.25 to 5.50 percent
Members of the Fed also reiterated they need “greater
confidence” inflation is moving sustainably toward 2 percent before
they consider cutting interest rates.
Meanwhile, the Fed said it would continue reducing its holdings
of Treasury securities and agency debt and agency mortgage-backed
securities but revealed plans to slow the pace of decline.
The central bank said would slow the pace of decline of its
securities holdings by reducing the monthly redemption cap on
Treasury securities from $60 billion to $25 billion.
The monthly redemption cap on agency debt and agency
mortgage-backed securities will be maintained at $35 billion, and
the Fed will reinvest any principal payments in excess of this cap
into Treasury securities.
“In continuation with the wait-and-see policy that has been in
place, Chairman Powell is buying some time by diverting attention
of this meeting towards the Fed’s balance sheet and focusing on
reducing the runoff pace of their Treasury holdings,” said Charlie
Ripley, Senior Investment Strategist for Allianz Investment
Management.
He added, “Ultimately, today’s policy decision was a
well-rounded approach to give the Fed more time to gain confidence
in the path of inflation, but we suspect they remain ready to cut
knowing that the interest rate curve has remained inverted for the
longest period on record.”
The Fed’s next monetary policy meeting is scheduled for June
11-12, with the central bank likely to leave rates unchanged once
again.
On the economic data front, payroll processor ADP released a
report showing private sector employment increased by more than
expected in the month of April.
ADP said private sector employment shot up by 192,000 jobs in
April after jumping by an upwardly revised 208,000 jobs in
March.
Economists had expected private sector employment to climb by
175,000 jobs compared to the addition of 184,000 jobs originally
reported for the previous month.
Meanwhile, the Institute for Supply Management released a
separate report showing a modest contraction by U.S. manufacturing
activity in the month of April.
The ISM said its manufacturing PMI slipped to 49.2 in April from
50.3 in March, with a reading below 50 indicating contraction.
Economists had expected the index to edge down to 50.0.
The slight pullback by the index came after it indicated a
modest expansion in March following sixteen consecutive months of
contraction.
Sector News
Semiconductor stocks showed a substantial move to the downside
on the day, resulting in a 3.5 percent nosedive by the Philadelphia
Semiconductor Index.
Advanced Micro Devices (NASDAQ:AMD) led the sector lower,
plunging by 9.0 percent despite reporting slightly better than
expected first quarter results. Traders may have been disappointed
AMD provided second quarter sales guidance in line with analyst
estimates.
Significant weakness was also visible among computer hardware
stocks, as reflected by the 2.0 percent slump by the NYSE Arca
Computer Hardware Index.
Shares of Super Micro Computer (NASDAQ:SMCI) plummeted by 14.0
percent after the high efficiency server maker reported weaker than
expected fiscal third quarter revenues.
Energy stocks also saw considerable weakness amid a steep drop
by the price of crude oil, while biotechnology, utilities and
telecom stocks showed strong moves to the upside.
Other Markets
In overseas trading, Japanese and Australian stocks moved lower
on Wednesday, with most markets in the Asia-Pacific region closed
for Labor Day. Japan’s Nikkei 225 Index dipped by 0.3 percent,
while Australia’s S&P/ASX 200 Index slumped by 1.2 percent.
While most of the major European markets were also closed on the
day, U.K. stocks moved modestly lower. The U.K.’s FTSE 100 Index
ended the day down by 0.3 percent.
In the bond market, treasuries moved sharply higher in reaction
to the Fed announcement. As a result, the yield on the benchmark
ten-year note, which moves opposite of its price, tumbled 9.1 basis
points to 4.595 percent.
Looking Ahead
Trading on Thursday may continue to be impacted by reaction to
the Fed announcement, while reports on weekly jobless claims, the
U.S. trade deficit and labor productivity and costs may also
attract attention.
SOURCE: RTTNEWS
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