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U.S. Stocks Show Strong Move Back To The Upside As Fed Leaves Rates Unchanged

wallstreet3 061318 29jul20 lt

Stocks moved significantly higher over the course of the trading day on Wednesday, offsetting the pullback seen late in the previous session. The major averages all moved to the upside, although the Dow underperformed its counterparts.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow climbed 160.29 points or 0.6 percent to 26,539.57, while the Nasdaq surged up 140.85 points or 1.4 percent to 10,542.94 and the S&P 500 jumped 40.00 points or 1.2 percent to 3,258.44.

Early buying interest was partly generated in reaction to the latest batch of earnings news, with a number of big-name companies reporting better than expected quarterly results.

Chipmaker Advanced Micro Devices (AMD) moved sharply higher after reporting second quarter results that exceeded analyst estimates and raising its full-year guidance.

Shares of C.H. Robinson (CHRW) also spiked after the transportation services provider reported second quarter results that beat analyst estimates on both the top and bottom lines.

On the other hand, General Motors (GM) moved to the downside over the course of the session even though the automaker reported a narrower than expected second quarter loss.

Shares of Boeing (BA) also came under pressure after the aerospace giant reported a wider than expected second quarter loss.

The strength on Wall Street also came following the release of a report from the National Association of Realtors showing another significant increase in pending home sales in the month of June.

NAR said its pending home sales index surged up by 16.6 percent to 116.1 in June after skyrocketing by 44.3 percent to 99.6 in May. Economists had expected pending home sales to jump by 15.0 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

With the continued increase in contract activity, pending home sales in June were up by 6.3 percent compared to the same month a year ago.

"It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago," said NAR chief economist Lawrence Yun.

He added, "Consumers are taking advantage of record-low mortgage rates resulting from the Federal Reserve's maximum liquidity monetary policy."

Stocks saw continued strength after the Federal Reserve announced its widely expected decision to leave interest rates at near-zero levels amid the economic hardship imposed by the coronavirus pandemic.

The Fed said it decided to maintain the target range for the federal funds rate at 0 to 0.25 percent, where it has remained since an emergency rate cut on March 15.

The accompanying statement noted economic activity and employment have picked up somewhat in recent months following sharp declines but remain well below their levels at the beginning of the year.

The central bank partly attributed the recent improvement in overall financial conditions to policy measures to support the economy and the flow of credit to U.S. households and businesses.

The Fed also reiterated that it remains committed to using its full range of tools to support the U.S. economy in this challenging time.

The statement did include a new sentence noting the path of the economy will depend significantly on the course of the virus, which Fed Chair Jerome Powell highlighted in his post-meeting press conference.

Sector News

Banking stocks moved sharply higher over the course of the trading session, driving the KBW Bank Index up by 3.2 percent to its best closing level in a month.

Substantial strength also emerged among energy stocks, which moved higher as the price of crude oil for September delivery rose $0.23 to $41.27 a barrel.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Oil Index spiked by 2.6 percent and 2.5 percent, respectively, and the NYSE Arca Natural Gas Index surged up by 2.3 percent.

Housing stocks also showed a strong move to the upside following the pending home sales data, resulting in a 2.6 percent jump by the Philadelphia Housing Sector Index.

Networking, steel and semiconductor stocks also saw considerable strength, while airline, biotechnology and gold stocks bucked the uptrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Wednesday. Japan's Nikkei 225 Index slumped by 1.2 percent, while China's Shanghai Composite Index surged up by 2.1 percent.

The major averages also finished the day mixed once again. While the German DAX Index edged down by 0.1 percent, the U.K.'s FTSE 100 Index closed just above the unchanged line and the French CAC 40 Index advanced by 0.6 percent.

In the bond market, treasuries showed a lack of direction before ending the day nearly unchanged. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 0.579 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to the weekly jobless claims report as well as a preliminary reading on GDP in the second quarter.

Earnings news may also continue to attract attention, with Qualcomm (QCOM), PayPal (PYPL), and Cheesecake Factory (CAKE) among the companies releasing their quarterly results after the close of today's trading.

Anheuser-Busch InBev (BUD), Comcast (CMCSA), DuPont (DD), Eli Lilly (LLY), Grubhub (GRUB), Kellogg (K), Kraft Heinz (KHC), MasterCard (MA), UPS (UPS), and Yum! Brands (YUM) are also among the companies due to report their results before the start of trading on Thursday.

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