The stock market ended the Thursday session on a lower note after the Federal Reserve made no changes to its policy stance. The S&P 500 shed 0.3% while the Nasdaq Composite (+0.1%) outperformed throughout the day.
FOMC days are known for afternoon volatility and today's affair lived up to that billing even though the policy statement from the Federal Reserve was virtually a carbon copy of the previous directive. The FOMC acknowledged positive labor market conditions in the U.S., but indicated that concerns related to an economic slowdown in China have outweighed the domestic positives. Ms. Yellen stressed that these developments have weighed on the inflation outlook, contributing to today's decision to maintain status quo.
Furthermore, Ms. Yellen emphasized that the expected rate path is more important than the first rate hike, indicating that the Committee expects to see rate normalization by 2018. Hearing ‘2018' in that context was music to the market's ears, inviting a stampede of buyers in stocks while Treasuries spiked to highs with the 10-yr yield falling ten basis points to 2.20%.
The post-FOMC move higher was followed by a dive to new lows, with the reversal paced by the financial sector (-1.4%), which settled in the red as bank stocks responded to rates remaining lower for longer. The sector accelerated its decline as Fed Chair Yellen responded to a question about the possibility that the U.S. falls into a Japan-like deflationary trap. To little surprise, Ms. Yellen said that such a scenario is not anticipated at this time.
Meanwhile, another influential group—technology (-0.7%)—also weighed on the broader market, ending near the bottom of the leaderboard after struggling throughout the session. The top-weighted sector was pressured by Oracle (ORCL 36.74, -1.53) as the stock lost 4.0% after its one-cent beat was not enough to dispel concerns about the company's guidance and lack of revenue growth. High-beta chipmakers also struggled with the PHLX Semiconductor Index falling 0.9%.
Elsewhere, another influential sector—health care (+0.9%)—settled well ahead of the S&P 500 with biotechnology powering the move. The iShares Nasdaq Biotechnology ETF (IBB 362.50, +7.36) surged 2.1% with the strength keeping the S&P 500 from sliding deeper into the red.
Also of note, the consumer discretionary space (+0.9%) managed to stay in the green, thanks to support from media names after Cablevision (CVC 32.51, +3.97) agreed to be acquired by Altice for roughly $17.70 billion in cash.
On the flip side, industrials (-0.5%), energy (-0.1%), and materials (-0.5%) succumbed to the afternoon selling pressure, which invited above-average volume with more than 975 million shares changing hands at the NYSE floor.
Economic data included Initial Claims, Housing Starts, Current Account, and the Philadelphia Fed Survey:
- The initial claims level declined to 264,000 from an unrevised 275,000 while the consensus expected no change at 275,000
- Over the past four weeks, the initial claims level has averaged 272,500, and weekly volatility has been minimal, suggesting a strong labor market
- The continuing claims level decreased to 2.237 mln from an upwardly revised 2.263 mln (from 2.260 mln) while the consensus expected a drop to 2.255 mln
- Housing starts declined 3.0% in August to 1.126 mln from a downwardly revised 1.161 mln (from 1.206 mln) in July while the consensus a drop to 1.158 mln
- As expected, single-family starts pulled back in August after reaching a seven-year high in July while construction levels remained strong
- Single-family starts slipped only 3.0% to 739,000 in August from 762,000 in July, and new construction is running well above its three-month (729,333) and 12-month (692,417) averages
- The current account deficit for the second quarter totaled $109.70 billion while the consensus expected the deficit to hit $112.20 billion
- The first quarter deficit was revised to $118.30 billion from $113.30 billion
- The Philadelphia Fed's Business Outlook Survey declined to -6.0 in September from 8.3 in August while the consensus expected an increase to 6.5
- That was the first reported contraction in the Philadelphia region since February 2014
- The Philadelphia region is not the only region where manufacturing activities experienced a sudden downturn. Just about all of the August regional Federal Reserve manufacturing surveys were negative, and the latest September reading of the New York Fed's Empire Manufacturing Survey reported a second consecutive sizable contraction in manufacturing activities
Tomorrow's economic data will be limited to the 10:00 ET release of the Leading Indicators report for August (Briefing.com consensus 0.2%).
- Nasdaq Composite +3.3% YTD
- Russell 2000 -1.9% YTD
- S&P 500 -3.3% YTD
- Dow Jones Industrial Average -6.4% YTD
Closing Market Summary: Stocks Slip While Fed Holds