After The Close - Save for a little strength in the technology stocks, the major market averages were quiet for most of the day as investors awaited word from the Federal Reserve on its outlook for inflation and interest rates. Another quarter-point rate hike was widely expected, and the Fed delivered on that count. The central bank also edged up its view for inflation, and noted that the economy is doing very well.

The market didn’t especially like what it heard about increasing prospects for two more rate hikes this year, instead of only one, though. Wall Street had been figuring there was about a 50-50 chance of either one or two more rate increases in 2018.

Stocks sold off modestly after the slightly hawkish Fed announcement at 2:00 PM EDT, but bond yields rose (with bond prices falling) and the dollar strengthened. 

Shares of homebuilders were among the session’s laggards, even before the Fed news. The feeling is that high home prices and rising interest rates are making it tougher on buyers.

The day’s other big theme was the potential ramifications of AT&T’s (T) courtroom victory over the Justice Department in its bid to acquire Time Warner (TWX). The decision seemed to open the floodgates for a number of possible mergers in the media and entertainment space. Companies of different stripes in these sectors are converging to cope with changing technologies and cord-cutting by customers unhappy with high prices for packaged services. The need by providers to both come up with content and deliver it directly to consumers could well mean more business combinations are on tap.

Elsewhere, oil prices moved up about $0.25 a barrel, to around $66.63 for the benchmark U.S. blend, helped by word of an expectedly large inventory draw, as reported by the Energy Department. Stockpiles are now 15% lower than a year ago, and just under their five-year average. Quotations have been under some pressure in recent weeks as OPEC has signaled that it will be pumping more.

Stocks weakened into the close, and finished near their lows for the day. All told, the Dow Jones Industrial Average was off 120 points; the S&P 500 gave back 11 points; and the NASDAQ fell eight points. More stocks fell than rose, indicating an uninspired tone to trading. - Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned. 


Before The Bell - Following a grudgingly higher session on Monday and the very fast conclusion to the President's much-anticipated meeting with the leader of North Korea, Wall Street opened on a mixed note yesterday morning. And as we reached the 30-minute mark of the new trading day, we saw that the Dow Jones Industrial Average was operating some 20 points in the red, while the S&P 500 Index and the NASDAQ were higher. All of this was going on as the Federal Reserve began its latest two-day FOMC meeting that is expected to end this afternoon with a quarter of a percentage point increase in the federal funds rate.

If we are correct on the Fed, that would be the second interest rate increase so far this year (a rate hike was effected in March) and the third since last December. Our sense is that the Fed will then raise borrowing costs in September. There is an outside chance for a fourth uptick in December, depending on the course of inflation, which seems to be ticking up. Meanwhile, on this latter front, the Bureau of Labor Statistics reported yesterday morning that the Consumer Price Index rose 0.2% in May. For the 12 months through May, the increase was 2.8%--the largest gain since early 2012.

The year-over-year gain in the core rate of inflation (which excludes the volatile food and energy components) was 2.2%. Clearly, the days of very low inflation, or even disinflation, are over for now. Should the rate of price growth rise notably from here, which is still unlikely in our view, we could get a fourth rate hike in December. Our sense is that the Fed will stop at three hikes this year. In the meantime, yields on U.S. Treasuries also increased, reaching 2.97% after the CPI release. Nevertheless, the market held pretty much steady as the morning moved along, as all eyes remained on the central bank and this afternoon's rate decision.

The stock market then started to firm up just a bit as the morning wound down, with the Dow edging back tentatively into the plus column as we neared the noon hour in New York. The other large-cap indexes and the smaller issues also strengthened some as the session moved along. There seemed some sense of relief that the meeting with North Korea ended on a hopeful note and with no added fireworks. Overall, though, the day's focus was logically on the Federal Reserve. Then, as the afternoon began, the market firmed up still more, with the NASDAQ, up nearly 0.60%, in the lead.

As we moved somewhat further into the afternoon, however, the Dow weakened anew, and as we entered the final 90 minutes of the session, the blue chip composite was off by some 60 points; the NASDAQ, though, remained well into the green. The S&P 500, meantime, moved to a breakeven stance. This back-and-forth reflected some understandable angst ahead of the Fed rate decision and accompanying monetary statement. However, as the session concluded, the Dow had retraced just about all of that afternoon loss to finish off just two points, while the NASDAQ led the rest of the market higher with a 44-point advance.

Now, a new day begins and one that could be consequential for investors depending on what the Fed does, and more to the point, what the lead bank says about its monetary policy plans. As noted, we expect the Federal Reserve to raise interest rates and point to another hike in September. What it says about the year beyond that point could well determine how stocks end the session. Our sense is that the Fed will be somewhat noncommittal, and that investors probably will not react all that much one way or the other. Beyond that point, the rest of the week will see key data on retail sales and industrial production.

Looking at the market overseas now, we see that shares were lower in Asia overnight, while in Europe, the leading bourses are tracing a modestly higher path so far this morning. In other markets, oil prices are up nominally; yields on the 10-year Treasury note are at 2.96% after ending matters yesterday at 2.96%, and U.S. equity futures are a bit higher in pre-market trading. – Harvey S. Katz, CFA

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.