Closing Market Summary: Stocks Slide While FOMC Keeps Participants on Their Toes
The major averages finished the Wednesday session in the red with small caps displaying the largest decline. The Russell 2000 lost 0.7% while the S&P 500 settled lower by 0.6% with all ten sectors ending in the red.
Equity indices did not show much change during the first half of the session as participants awaited the latest policy statement from the Federal Reserve, but activity picked up considerably after the release of the directive. Confusion may have also played a part in today's trading activity as the FOMC statement represented the most wordy directive on record.
As expected, the Federal Open Market Committee announced another $10 billion taper, reducing the size of its monthly asset purchases to $55 billion ($25 billion in agency mortgage-backed securities and $30 billion in longer-term Treasuries). In addition, the Committee opted to drop the 6.5% unemployment threshold from its forward guidance while choosing to shift the focus to a ‘wide range of information' on jobs as well as inflation.
Although the stock market dropped to new lows immediately following the statement, those losses were limited with the S&P 500 trading roughly five points below its flat line. The benchmark index tried to claw its way back to the flat line, but was unable to do so with selling pressure accelerating after Ms. Yellen gave an interesting answer to a question regarding a portion of the policy statement.
In response to a question as to what the Fed means by "considerable time" for keeping the current target range for the federal funds rate after the asset purchase program ends, Fed Chair Yellen said "probably six months." Selling activity accelerated after the remark and the fed funds futures market, which, last week, expected the first hike to take place in July, saw the expectations shift to April.
Treasuries plunged to lows after the FOMC announcement and continued their retreat during Ms. Yellen's press conference. The benchmark 10-yr yield was up as much as 11 basis points at 2.79% before retreating to 2.77% by the close, representing a nine-point increase.
The big spike in yields weighed on the rate-sensitive utilities sector (-1.5%), which ended at the bottom of the leaderboard. The remaining countercyclical groups were mixed with respect to the broader market as consumer staples (-0.9%) lagged while health care (-0.4%) and telecom services (-0.4%) outperformed.
On the cyclical side, energy (-0.9%), industrials (-1.0%), and materials (-0.9%) bore the brunt of the selling while the remaining groups held up relatively well. Consumer discretionary (-0.6%) and technology (-0.5%) displayed losses comparable to the benchmark index while financials (-0.2%) outperformed as higher rates should translate into improved net interest margins. Bank of America (BAC 17.44, +0.25) and Citigroup (C'48.94, +0.80) settled higher by 1.5% and 1.7%, respectively, while regional banks also displayed strength. The SPDR S&P Regional Banking ETF (KRE 41.62, +0.27) gained 0.7%.
Volatility protection was in demand as indicated by a 4.1% increase in the CBOE Volatility Index (VIX 15.12, +0.60).
Despite the busy afternoon, participation was on the light side with just over 650 million shares changing hands at the NYSE.
Today's economic data was limited to two data points. The fourth quarter current account deficit totaled $81.10 billion while the consensus expected the deficit to hit $87.60 billion. The third quarter deficit was revised to $96.40 billion from $94.80 billion.
Separately, the weekly MBA Mortgage Index fell 1.2% to follow last week's'decline of 2.1%.
Tomorrow, weekly initial claims will be released at 8:30 ET while February Existing Home Sales, February Leading Indicators, and the March Philadelphia Fed survey will cross the wires at 10:00 ET.
* Russell 2000 +3.2% YTD * Nasdaq Composite +3.1% YTD * S&P 500 +0.7% YTD * Dow Jones Industrial Average -2.1% YTD