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Modest Strength Remains Visible On Wall Street - U.S. Commentary

wallstreet 111614 13jun18

After moving to the upside early in the session, stocks continue to see modest strength in mid-day trading on Wednesday. The tech-heavy Nasdaq is outperforming the other major averages, climbing to a record intraday high.

In recent trading, the Nasdaq has pulled back off its best levels but remains up 40.38 points or 0.5 percent at 7,744.18. The Dow is up 9.50 points or less than a tenth of a percent at 25,330.23 and the S&P 500 is up 3.20 points or 0.1 percent at 2,790.05.

The advance by the Nasdaq is partly due to strength among media stocks after a federal judge approved AT&T's (T) takeover of Time Warner (TWX).

Twenty-First Century Fox (FOXA) is posting a particularly strong gain, jumping by 7.5 percent after reaching a record intraday high earlier in the session.

Fox is benefiting from speculation about a potential bidding war between Comcast (CMCSA) and Disney (DIS) for the company's entertainment assets.

Overall trading activity remains somewhat subdued, however, as traders look ahead to the Federal Reserve's monetary policy announcement this afternoon.

The Fed is scheduled to announce its monetary policy decision at 2 pm ET, followed by Fed Chairman Jerome Powell's press conference at 2:30 pm ET.

While the Fed is widely expected to raise interest rates by a quarter point, traders are likely to pay close attention to the accompanying statement for clues about future rate hikes.

Likely reinforcing expectations for a rate hike, the Labor Department released a report before the start of trading showing a bigger than expected increase in producer prices in the month of May.

The Labor Department said its producer price index for final demand climbed by 0.5 percent in May after inching up by 0.1 percent in April. Economists had expected producer prices to rise by 0.3 percent.

Excluding food and energy prices, core producer prices rose by 0.3 percent in May after edging up by 0.2 percent in April. Core prices had been expected to show another 0.2 percent increase.

The report said the annual rate of producer price growth accelerated to 3.1 percent in May from 2.6 percent in April, reaching its highest level in over six years.

The annual rate of growth in core producer prices also ticked up to 2.6 percent in May from 2.5 percent in the previous month.

"The rebound in producer price inflation in May supports our view that core consumer price inflation will trend higher over the rest of this year," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "That will keep the pressure on the Fed to keep raising interest rates once a quarter over the next year or so."

Sector News

Most of the major sectors continue to show only modest moves on the day, although substantial weakness remains visible among housing stocks.

Reflecting the weakness in the housing sector, the Philadelphia Housing Sector Index has slumped by 1.8 percent after ending the previous session at its best closing level in almost two months.

The pullback by housing stocks may reflect concerns about the impact of higher interest rates ahead of this afternoon's Fed announcement.

Rate-sensitive commercial real estate stocks have also moved lower on the day, while some strength has emerged among semiconductor stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Wednesday. China's Shanghai Composite Index and Hong Kong's Hang Seng Index slumped by 1 percent and 1.2 percent, respectively. However, Japan's Nikkei 225 Index bucked the downtrend.

Meanwhile, the major European markets turned in a lackluster performance on the day. While the German DAX Index rose by 0.4 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index ended the day nearly unchanged.

In the bond market, treasuries are showing a lack of direction as traders look ahead to the Fed decision. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by less than a basis point at 2.955 percent.

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