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U.S. Stocks Close Little Changed After Post-Fed Volatility

wallstreet aug27 18sep19 lt

Stocks saw considerable volatility following the Federal Reserve's monetary policy announcement on Wednesday before eventually ending the session little changed.

The major averages initially came under pressure after the Fed announcement but showed a notable rebound to end the day on opposite sides of the unchanged line.

While the Nasdaq edged down 8.62 points or 0.1 percent to 8,177.39, the Dow inched up 36.28 points or 0.1 percent to 27,147.08 and the S&P 500 crept up 1.03 points or less than a tenth of a percent to 3,006.73.

The volatility on Wall Street came after the Fed revealed its widely expected decision to cut rates by another 25 basis points, lowering the target range for the federal funds rate to 1-3/4 to 2 percent.

The latest rate cut was once again attributed to the implications of global developments for the economic outlook as well as muted inflation pressures.

The accompanying statement was largely unchanged from July, with the Fed reiterating that the labor market remains strong and that economic activity has been rising at a moderate rate.

The Fed did acknowledge in its latest statement that exports have weakened along with business fixed investment, although the central bank noted household spending has been rising at a strong pace.

The decision to cut rates was widely expected by economists but was not without dissent from members of the Federal Open Market Committee.

The FOMC voted 7 to 3 to lower rates by 25 basis points, with St. Louis Fed President James Bullard preferring a 50 basis point cut and Kansas City Fed President Esther George and Boston Fed President Eric Rosengren preferring to leave rates unchanged.

The Fed's economic projections suggest that the meeting participants are also divided about the outlook for interest rates.

While seven participants expect another rate cut before the end of year, five expect rates to remain unchanged and another five expect rates to be raised back to 2 to 2-1/4 percent.

The central bank reiterated that it will act as appropriate to sustain the economic expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

Today's modest rate cut was not well received by President Donald Trump, who recently urged the Fed to lower interest rates to zero or less

"Jay Powell and the Federal Reserve Fail Again. No 'guts,' no sense, no vision! A terrible communicator!" Trump tweeted shortly after the announcement.

Fed Chairman Jerome Powell said in his post-meeting press conference that the central bank is prepared for a more "extensive sequence of rate cuts" in the face of an economic downturn but noted that is not currently expected.

Powell also told reporters that he does not foresee the Fed using negative interest rates as a policy tool, as Trump has suggested.

"If we were to find ourselves at some future date again at the effect of a lower bound, again not something we are expecting, then I think we would look at using large scale asset purchases and forward guidance," Powell said.

The Fed announcement largely overshadowed a Commerce Department report showing a substantial rebound in new residential construction in the month of August.

Sector News

Gold stocks showed a significant move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 2 percent.

The sell-off by gold stocks came as the price of the precious metal finished regular trading modestly higher but fell sharply in electronic trading.

Considerable weakness was also visible among natural gas stocks, as reflected by the 1.9 percent slump by the NYSE Arca Natural Gas Index.

Steel, transportation and oil service stocks also ended the day notably lower, while most of the major sectors showed only modest moves.

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 dipped by 0.2 percent, while China's Shanghai Composite Index rose by 0.3 percent.

The major European markets also turned mixed on the day. While the U.K.'s FTSE 100 Index edged down by 0.1 percent, the French CAC 40 Index and the German DAX Index both inched up by 0.1 percent.

In the bond market, treasuries pulled back off their best levels after the Fed announcement but remained positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped by 2.6 basis points to 1.786 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although reports on weekly jobless claims, existing home sales and Philadelphia-area manufacturing activity may also attract attention.

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