Closing Market Summary: Stocks Climb While Fed Tapers Again
The major averages posted modest gains of Thursday after the Federal Open
Market Committee announced another $10 billion taper, which was widely
expected. The S&P 500 climbed to a new record closing high at 1956.98,
adding 0.8% with all ten sectors posting gains.
Equity indices spent the first half of the session near their flat lines
as market participants held pat ahead of the afternoon statement from the
Fed. The $10 billion reduction lowered the size of monthly asset purchases
to $35 billion, while the remainder of the policy statement struck a
familiar tone.
The Fed reiterated its commitment to the current level of interest rates,
saying rates are likely to remain low for a considerable time after
quantitative easing ends. Furthermore, the FOMC released its economic
projections, but those were not too different from the prior forecast
either. According to the projections, the Fed expects the jobless rate to
be between 6.0% and 6.1% at the end of the year after calling for a rate
between 6.1% and 6.3% in its last set of projections.
During the press conference, Fed Chair Yellen justified the taper by
saying the economy is on track to meet its objectives and that the GDP
contraction observed in the first quarter was an aberration. Ms. Yellen
also noted that inflation remains below the 2.0% objective, which could
lead to broader risks.
The utilities sector (+2.2%) finished in the lead after spending the
entire session atop the leaderboard. Thanks to the solid gain, the sector
extended its June advance to 2.7%, while also pushing its year-to-date
gain to 14.1%.
Elsewhere among countercyclical sectors, telecom services (+0.5%) lagged,
while consumer staples (+1.2%) and health care (+0.8%) finished ahead of
the broader market.
Meanwhile, the six cyclical sectors ended mixed when compared to the S&P
500. Yesterday's leading group—financials—advanced 0.7%, but could not
keep up with the broader market. That was also the case with technology
(+0.5%) and industrials (+0.5%).
It is worth mentioning that the industrial sector was held back by defense
contractors (PHLX Defense Index +0.2%), while transports rallied broadly
after FedEx (FDX 148.95, +8.64) reported better than expected results. The
stock surged 6.2%, which also gave a boost to UPS (UPS 102.79, +1.18). For
its part, the Dow Jones Transportation Average jumped 1.5%.
Also of note, the weakest sector of the year—consumer discretionary
(+0.8%)—trimmed its 2014 loss to 0.5%. Shares of Amazon.com (AMZN 334.38,
+8.76) played a part in today's outperformance, rallying 2.7% after the
company unveiled a smartphone, which will be available in five weeks.
The afternoon rally to new highs saw some participants lift their hedges,
which sent the CBOE Volatility Index (VIX 10.60, -1.46) to a new low for
the year.
Treasuries, meanwhile, held slim gains into the afternoon and climbed to
new highs after the FOMC statement crossed the wires. The 10-yr note added
half a point, lowering its yield to 2.59%.
Participation remained on the light side with just over 610 million shares
changing hands at the NYSE.
Economic data was limited to the weekly MBA Mortgage Index and Current
Account data for Q1:
* The MBA Mortgage index fell 9.2% to follow last week's 10.3%
increase.
* The current account deficit for the first quarter totaled $111.20
billion while the Briefing.com consensus expected the deficit to hit
$97.80 billion. The fourth quarter deficit was revised to $87.30
billion from $81.10 billion.
Tomorrow, weekly initial claims (consensus 313K) will be
released at 8:30 ET, while the June Philadelphia Fed survey (consensus
13.4) and May Leading Indicators (consensus 0.5%) will cross the wires at
10:00 ET.
* S&P 500 +5.9% YTD
* Nasdaq Composite +4.5% YTD
* Dow Jones Industrial Average +2.0% YTD
* Russell 2000 +1.8% YTD