Closing Market Summary: Stocks Settle Slightly HigherThe Fed's latest policy directive did little to upset equity investors on Wednesday as all three major averages notched new record highs. The S&P 500 (unch) and the Nasdaq (+0.2%) fought hard for their slim gains while the Dow (+0.5%) settled with a more comfortable margin of victory thanks to Boeing's (BA 233.45, +20.99) upbeat earnings report. Meanwhile, the small-cap Russell 2000 underperformed, dropping 0.6%.
As expected, the FOMC unanimously voted to keep the fed funds target range at 1.00%-1.25%. Regarding the central bank's $4.5 trillion balance sheet, the Fed indicated that it expects to begin the paring process "relatively soon", which has been largely interpreted as September.
Treasuries rallied to fresh session highs following the release of the Fed's policy statement while the U.S. Dollar Index (93.35, -0.56, -0.6%) slid into negative territory from its flat line. The 2-yr yield was hovering three basis points below its flat line in front of the release and eventually settled six basis points lower at 1.34%. Similarly, the benchmark 10-yr yield also dropped six basis points to 2.28%.
The somewhat counter-intuitive reactions in the bond and currency markets have been attributed to the notion that it seems unlikely that the Fed would announce a rate hike at the September meeting if it plans to start paring its balance sheet at that time. The CME FedWatch Tool now points to the March FOMC meeting (from December) as the most likely time for the next rate-hike announcement with an implied probability of 55.1%.
Outside of monetary policy, earnings season was the focal point on Wall Street as another batch of quarterly reports came in largely better than expected. Boeing was maybe the most notable post-earnings advancer, surging 9.9%, after reporting better than expected earnings and raising its earnings guidance for the fiscal year.
AT&T (T 38.03, +1.81) also had a solid performance, pinning the telecom services sector (+3.0%) to the top of the leaderboard. T shares jumped 5.0% after AT&T beat bottom-line estimates.
As for the remaining ten sectors, seven finished in positive territory with gains ranging between 0.1% and 0.9%. The rate-sensitive utilities (+0.9%) and real estate (+0.8%) groups exhibited relative strength, benefiting from the slide in interest rates.
Meanwhile, the energy sector (+0.1%) eked out a slim victory despite a strong performance from crude oil, which climbed 1.8% to $48.73/bbl. The commodity rallied around the EIA's latest crude inventory report, which showed a much larger than expected draw in U.S. stockpiles for the week ended July 21 (-7.2 million barrels actual vs -3.0 million consensus).
Like energy, the consumer staples space (+0.1%) also eked out a slim victory with soft-drink giant Coca-Cola (KO 45.74, +0.50) advancing 1.1% on better than expected earnings.
On the flip side, the heavily-weighted financial sector weighed on the broader market, dropping 0.6%. The bulk of the sector's loss came in the afternoon session amid the bond market's post-FOMC decision rally. The lightly-weighted materials sector (-0.6%) also registered a notable decline.
Similarly, the influential health care sector (-0.3%) struggled amid broad weakness. Amgen (AMGN 175.89, -5.00) was one of the sector's weakest components despite reporting better than expected earnings/revenues and issuing upbeat revenue guidance. AMGN shares settled with a loss of 2.8%.
Reviewing Wednesday's economic data, which was limited to June New Home Sales and the weekly MBA Mortgage Applications Index:
- New Home Sales in June hit an annualized rate of 610,000, which was above the revised May rate of 605,000 (from 610,000), and in line with the consensus.
- The key takeaway from the report is that sales activity was subdued month-over-month despite a 3.4% drop in the median sales price of $310,800. The average sales price, however, was up 4.2% to $379,500, which points to the affordability factor acting as a sales constraint.
- The weekly MBA Mortgage Applications Index rose 0.4% to follow last week's 6.3% increase.
On Thursday, investors will receive three pieces of economic data--June Durable Orders (consensus 2.9%), the weekly Initial Claims Report (consensus 240K), and June International Trade in Goods (consensus -$64.9 billion). All three reports will be released at 8:30 ET.
- Nasdaq Composite +19.3% YTD
- S&P 500 +10.7% YTD
- Dow Jones Industrial Average +9.9% YTD
- Russell 2000 +6.3% YTD