Major Averages Close Mixed Following Fed Announcement - U.S. Commentary

wallstreet 112014 20Sep17

Stocks saw considerable volatility late in the trading day on Wednesday as traders digested the Federal Reserve's monetary policy announcement. The major averages eventually ended the session mixed, with the Dow and the S&P 500 rising to new record closing highs.

While the Nasdaq edged down 5.28 points or 0.1 percent to 6,456.04, the Dow rose 41.79 points or 0.2 percent to 22,412.59 and the S&P 500 inched up 1.59 points or 0.1 percent to 2,508.24.

The mixed close on Wall Street came after the Fed left interest rates unchanged as widely expected but signaled another rate hike is likely this year.

The Fed's projections pointed to a quarter basis point rate increase later this year, with the rate hike widely expected to come at the December meeting.

"We had suspected that the recent softness of core inflation could persuade officials to hold off on the next rate hike until next year," said Andrew Hunter, U.S. economist at Capital Economics.

He added, "Given these latest projections and the broadly unchanged language on inflation in today's policy statement, we now expect the Fed to push on and raise rates again in December."

The Fed also revealed that it will begin shrinking its $4.5 trillion balance sheet in October, initially allowing $10 billion in bonds to roll off each month.

In her subsequent press conference, Fed Chair Janet Yellen said the process of winding down the balance sheet will be gradual and predictable.

With the focus on the Fed, traders shrugged off a report from the National Association of Realtors showing an unexpected decrease in existing home sales in the month of August.

NAR said existing home sales slumped by 1.7 percent to an annual rate of 5.35 million in August after tumbling by 1.3 percent to a rate of 5.44 million in July.

The continued decrease surprised economists, who had expected existing home sales to edge up to an annual rate of 5.46 million.

With the unexpected decrease, existing home sales fell to their lowest annual rate since hitting 5.34 million last August.

Sector News

Oil service stocks moved sharply higher over the course of the trading day, driving the Philadelphia Oil Service Index up by 1.8 percent. The index reached its best closing level in two months.

The strength in the oil service sector came amid a notable increase by the price of crude oil, with crude for October delivery climbing $0.93 to $50.41 a barrel.

Significant strength was also visible among biotechnology stocks, as reflected by the 1.6 percent gain posted by the NYSE Arca Biotechnology Index.

Alnylam Pharmaceuticals (ALNY) posted a standout gain after the biopharmaceutical company reported positive trial results for its treatment of a rare genetic disease.

Transportation stocks also showed a notable move to the upside on the day, resulting in a 1.6 percent advance by the Dow Jones Transportation Average. With the gain, the average reached a two-month closing high.

On the other hand, gold stocks fell sharply following the Fed announcement, dragging the NYSE Arca Gold Bugs Index down by 1.9 percent. The weakness in the sector came as the price of gold came under pressure in electronic trading.

Semiconductor and computer hardware stocks also saw notable weakness, contributing to the modest drop by the tech-heavy Nasdaq.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a lackluster performance during trading on Wednesday. Japan's Nikkei 225 Index inched up by 0.1 percent, while Australia's S&P/ASX 200 Index dipped by 0.1 percent.

The major European markets also ended the day roughly flat. While the U.K.'s FTSE 100 Index edged down by 0.1 percent, the German DAX Index and the French CAC 40 both crept up by 0.1 percent.

In the bond market, treasuries came under pressure on the heels of the announcement from the Fed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.4 basis points to a one-month closing high of 2.277 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although traders are also likely to keep an eye on reports on weekly jobless claims and Philadelphia-area manufacturing activity.

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