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Major Averages Close Slightly Lower After Choppy Session - U.S. Commentary


Stocks showed a lack of direction over the course of the trading day on Wednesday, extending the volatility seen late in the previous session. The major averages spent much of the day bouncing back and forth across the unchanged line.

Eventually, the major averages ended the session slightly lower. The Dow edged down 3.12 points or less than a tenth of a percent to 26,449.54, the Nasdaq slipped 4.15 points or 0.1 percent to 7,996.08 and the S&P 500 dipped 6.61 points or 0.2 percent to 2,900.45.

The choppy trading on Wall Street came as traders digested a mixed batch of earnings news from big-name companies such as PepsiCo (PEP), Morgan Stanley (MS), Netflix (NFLX) and IBM Corp. (IBM).

PepsiCo and Morgan Stanley posted notable gains after reporting quarterly results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, Netflix and IBM moved to the downside after both reported better than expected earnings but on weaker than expected revenues and provided disappointing guidance.

The lackluster performance continued as the Federal Reserve's Beige Book said U.S. economic activity expanded at a slight-to-moderate pace in March and early April.

A compilation of anecdotal evidence on economic conditions in the twelve Fed districts, the Beige Book said most districts reported that growth continued at a similar pace as the previous report, while a few districts reported some strengthening.

The Beige Book showed reports from the Fed districts indicated generally positive economic conditions in various sectors but noted some caveats.

For instance, the report said reports on manufacturing activity were favorable, although contacts in many districts noted trade-related uncertainty.

Reports of stronger home sales in most districts were similarly tempered by indications of low demand for higher-priced homes.

Looking ahead, the Fed said there was little change in the economic outlook, with contacts in reporting districts expecting slight-to-modest growth in the months ahead.

The release of the Beige Book comes as the Fed is scheduled to hold its next two-day monetary policy meeting on April 30th and May 1st.

CME Group's FedWatch tool currently indicates a 99.5 percent chance the Fed will leave interest rates unchanged at its next meeting.

Meanwhile, a report released by the Commerce Department showed the U.S. trade deficit unexpectedly narrowed in the month of February amid a jump in the value of exports.

The Commerce Department said the trade deficit narrowed to $49.4 billion in February from $51.1 billion in January, while economists had expected the deficit to widen to $53.5 billion.

Sector News

Biotechnology stocks moved sharply lower over the course of the trading session, dragging the NYSE Arca Biotechnology Index down by 5.3 percent to its lowest closing level in over three months.

Substantial weakness was also visible among healthcare and pharmaceutical stocks, with the Dow Jones Health Care Index and the NYSE Arca Pharmaceutical Index slumping by 3.1 percent and 2.1 percent, respectively.

The weakness among healthcare-related stocks as a whole was partly attributed to concerns about the potential impact of Democrats' plans for the healthcare system.

Telecom stocks also saw notable weakness, with Sprint (S) and T-Mobile (TMUS) leading the way sector lower amid worries about approval of their planned merger.

On the other hand, semiconductor stocks extended the strong upward move seen in the previous session, driving the Philadelphia Semiconductor Index up by 1.6 percent to another new record closing high.

Communications chip maker Qualcomm (QCOM) posted another standout gain after settling a royalty dispute with Apple (AAPL).

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index rose by 0.3 percent, while Australia's S&P/ASX 200 Index dropped by 0.3 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index closed just above the unchanged line, the German DAX Index and the French CAC 40 Index climbed by 0.4 percent and 0.6 percent, respectively.

In the bond market, treasuries showed a lack of direction before closing roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 2.592 percent.

Looking Ahead

Reaction to the latest earnings news may continue to impact trading on Thursday, although traders are also likely to keep an eye on reports on retail sales, weekly jobless claims, and leading economic indicators.

On the earnings front, Adtran (ADTN), Alcoa (AA), E*Trade (ETFC), Pier 1 Imports (PIR), and United Rentals (URI) are among the companies releasing their quarterly results after the close of today's trading.

American Express (AXP), Honeywell (HON), and Travelers (TRV) are also among the companies due to release their results before the start of trading on Thursday.

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