Closing Market Summary: S&P 500 Closes at Record HighEquities posted their fifth consecutive win on Wednesday with the S&P 500 (+0.3%) jumping to a new record high. The Nasdaq (+0.4%) and the Dow (+0.4%) also settled with modest gains after the FOMC minutes for the May 2-3 meeting led to an uptick in buying interest in the afternoon session.
The FOMC minutes revealed that Committee members agree that it will soon be appropriate to begin reducing the central bank's massive balance sheet, and provided a possible straightforward approach to do so. Currently, the central bank is holding the balance sheet steady by reinvesting the principal of maturing securities. But, by the end of the year, the Fed would like to introduce a gradual increase of caps to limit the reinvestment.
Taking steps to reduce the Fed's balance sheet would add to the tightening effect from rising rates, but it is worth noting that the plan revealed in the minutes is not as aggressive as it could be if the Fed decided to stop reinvestments altogether. The Fed's willingness to discuss the issue shows that the central bank has pretty good confidence in the economic outlook, having attributed first quarter weakness to transitory factors.
The fed funds futures market still points to the June FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 83.1%, up from yesterday's 78.5%.
U.S. Treasuries took the FOMC minutes in stride, hitting their best levels of the day following the release; the benchmark 10-yr yield slipped two basis points to 2.26%. Meanwhile, the U.S. Dollar Index (97.01, -0.28) moved lower in tandem with interest rates and the CBOE Volatility Index (VIX 9.99, -0.73, 6.8%) dropped below the 10.00 mark.
In the equity market, the S&P 500 drifted within a three-point range going into the FOMC minutes, but then moved to a fresh session high following the release. Eight of eleven sectors settled in positive territory, however, sector leadership was weak. The lightly-weighted materials (+0.7%), utilities (+0.7%), and real estate (+0.6%) spaces paced the advanced while the top-weighted technology (+0.5%) and financials (unch) sectors failed to really distinguish themselves.
The energy (-0.4%) sector settled with the telecom services group (-0.7%) at the bottom of the day's leaderboard as crude oil fell 0.3% to $51.35/bbl. The Energy Information Administration (EIA) reported a larger than expected draw in U.S. crude stocks for the week ended May 19 (-4.4 million barrels actual vs -2.4 million barrels consensus). However, the report prompted little to no movement as investors remained cautious ahead of tomorrow's OPEC/non-OPEC production meeting.
In U.S. corporate news, retailers slipped after producing another largely disappointing batch of earnings; Lowe's (LOW 79.85, -2.49) lost 3.0% on downbeat earnings, Tiffany & Co. (TIF 85.03, -8.11) lost 8.7% on worse than expected revenues, and Advance Auto Parts (AAP 133.02, -7.64) dropped 5.4% after missing top and bottom line estimates. The SPDR S&P 500 Retail ETF (XRT 40.40, -0.15) lost 0.4% while the consumer discretionary sector (+0.4%) finished a tick above the broader market.
The remaining sectors--industrials (+0.1%), health care (+0.2%), and consumer staples (+0.5%)--finished the session with modest gains.
On the data front, investors received several economic reports on Wednesday, including April Existing Home Sales, the March FHFA Housing Price Index, and the weekly MBA Mortgage Applications Index:
- Existing home sales for April decreased 2.3% from March to an annualized rate of 5.57 million units while the consensus expected a reading of 5.65 million. The prior month's reading was revised to 5.70 million from 5.71 million.
- The key takeaway from the report remains the same: existing home sales are being impeded by a lack of affordable supply, particularly in the lower- and mid-market price range.
- The FHFA Housing Price Index for March increased 0.6%, which followed an unrevised increase of 0.8% in February.
- The weekly MBA Mortgage Applications Index increased 4.4% to follow last week's 4.1% decrease.
Tomorrow, investors will receive Initial Claims (consensus 238,000) and April Advance International Trade in Goods. Both reports will cross the wires at 8:30 ET.
- Nasdaq Composite +14.5% YTD
- S&P 500 +7.4% YTD
- Dow Jones Industrial Average +6.3% YTD
- Russell 2000 +1.9% YTD