| | | S&P 500 recoups losses after Fed rate cut; FedEx issues earnings warning
18-Sep-19 16:20 ET
Dow +36.28 at 27147.06, Nasdaq -8.62 at 8177.43, S&P +1.03 at 3006.73
briefing.com
[BRIEFING.COM] The stock market closed mixed on Wednesday, as investors digested the second rate cut from the Fed this year and an earnings warning from FedEx (FDX 150.91, -22.39, -12.9%). The S&P 500 (+0.03%), Dow Jones Industrial Average (+0.1%), and Nasdaq Composite (-0.1%) finished little changed. The Russell 2000 declined 0.6%.
The FOMC voted 7-3 to cut the target range for the fed funds rate by 25 basis points to 1.75-2.00%, as expected. Price action leading up to the decision was muted and volatility quickly ensued after the policy directive. Buying conviction, however, was largely absent before and immediately after the decision as the market extended losses heading into Fed Chair Powell's press conference.
Key takeaways from the Fed's policy decision included:
(1) Voting members remained divided: St. Louis Fed President Bullard preferred a 50-basis points cut, while Boston Fed President Rosengren and Kansas City Fed President George preferred no change in the fed funds rate; (2) the median Fed member is suggesting there will be no more rate cuts in 2019 and 2020; and (3) the interest paid on excess reserve balances was lowered to 1.80% from 2.10% -- which could provide some stability in the repo market after the New York Fed injected more liquidity today.
Selling pressure soon abated and stocks climbed to session highs, with the S&P 500 financials sector (+0.4%) providing influential leadership, as the Fed Chair Powell wrapped up his press conference. The utilities sector (+0.5%) outperformed, while the energy sector (-0.4%) underperformed as oil prices ($58.07/bbl, -1.30, -2.2%) continued to pull back.
Mr. Powell said the Fed does not see a recession, is not interested in negative rates, and the repo issue has no implications for the economy or monetary policy. FedEx (FDX), meanwhile, provided a pessimistic view on the global economy. The company cut its FY20 EPS guidance due to a weakening global environment, driven by trade tensions and policy uncertainty.
On a related note, Adobe Systems (ADBE 279.72, -4.97, -1.8%) guided Q4 EPS and revenue below consensus, although it did beat earnings estimates.
The U.S. Treasury yield curve saw some flattening activity following the Fed decision. The 2-yr yield increased two basis points to 1.75%, and the 10-yr yield declined three basis points to 1.79%. The U.S. Dollar Index also strengthened after the decision, increasing 0.3% to 98.55.
Reviewing Wednesday's economic data, which included Housing Starts and Building Permits for August and the weekly MBA Mortgage Applications Index:
- Total housing starts surged 12.3% m/m in August to a seasonally adjusted annual rate of 1.364 million units (Briefing.com consensus 1.255 million) while total permits jumped 7.7% to 1.419 million (Briefing.com consensus 1.300 million).
- The key takeaway from the report is that the growth wasn't entirely a multi-unit story. Single-family starts and permits both increased nicely month-over-month. The permits increase is especially notable, because that is a leading indicator that should support the market's improved attitude toward the U.S. growth outlook.
- The weekly MBA Mortgage Applications Index declined 0.1% following a 2.0% increase in the prior week.
Looking ahead, investors will receive the following data on Thursday: Existing Home Sales for August, weekly Initial and Continuing Claims, the Current Account Balance for Q2, the Philadelphia Fed Index for September, and the Conference Board's Leading Economic Index for August.
- Nasdaq Composite +23.2% YTD
- S&P 500 +19.9% YTD
- Dow Jones Industrial Average +16.4% YTD
- Russell 2000 +16.3% YTD
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