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After The Close - Stocks were quiet for most of the day ahead of a Federal Reserve decision on interest rates at 2:00 PM EDT, but then reacted notably. After the Fed largely met expectations, markets initially rose slightly, but then diverged. There was renewed selling in technology stocks, although the Dow Jones Industrial Average strengthened into the close. When all was said and done, the Dow was up 46 points; the NASDAQ lost 25 points; and the S&P 500 dropped a couple of points. Market breadth was tilted to the downside, although less so on the New York Stock Exchange than the NASDAQ.

As noted, the major averages were flat for much of the day, with little for Wall Street to get excited about in terms of economic data. A report from the Commerce Department showed that retail sales for May fell 0.3%, which represented first decline since February and the biggest drop in over a year. However, the silver lining was that retail sales rose 3.8% on an annual basis, making the month-to-month number somewhat less discouraging.

Elsewhere, a report from the Labor Department showed a decline in core inflation at the retail level in June. That seemed to match what the Fed said about inflation levels in its late-day statement. The takeaway is that interest-rate expectations remain basically unchanged through 2018. Some investors appeared disappointed that the projected pace of rate hikes did not slow. But apparently the Fed believes inflation will pick back up.

There was more talk by the central bank about soon reducing the size of its balance sheet, which became bloated after the last recession as the Fed used unconventional measures to support the economy. Allowing maturing securities to roll off will help finally unwind what was seen as an emergency measure when first put in place.

As for stock market sectors, energy shares fell on renewed bearishness toward oil prices. Quotation in New York trading dropped $1.70 a barrel, to around $44.75. A report from the Energy Department showing that weekly inventories fell less than expected hurt sentiment.

The session’s leading sectors were the traditionally defensive healthcare and consumer staples groups, underscoring some weakness to the day’s overall action. -  Robert Mitkowski

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

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12:15 PM EDT - The major U.S. indexes bounced on either side of the breakeven line Wednesday morning, as investors parsed through a slew of newly released economic data and awaited the Federal Reserve’s update on monetary policy. That announcement comes in the afternoon, with most expecting the central bank to increase interest rates by 25 basis points. Early in the morning, the Dow Jones Industrial Average set a record high, before settling to its current level, likely a reflection of this assumption. Market breadth was mostly mixed, as were the market sectors.

The business beat revealed some mixed metrics ahead of the interest rate announcement. The Consumer Price Index decreased 0.1% last month, a slight disappointment from the anticipated 0.2% rise. While retail sales also faltered, struggles in the energy sector especially hurt the all items index. Still, we expect the Fed’s decision to be the major market force looming over today’s trading, and probably until late July’s earnings season. While we believe today’s rise is ostensibly factored into the current levels, the big question is whether today’s figures, as well as yesterday’s producer price index reading, will be enough to give pause to the central bank as it mulls how many hikes it plans to implement through year end. The plan currently projects for at least one more augmentation by the end of 2017.

Meanwhile, U.S. crude oil has fallen roughly 3.6% per barrel on sustained concerns about the global supply glut. While domestic inventories fell by 1.7 million barrels last year, this figure was well below the expected 2.7 million, according to the U.S. Energy Information Administration. The lukewarm reception to remedial efforts by OPEC, which recently implemented a nine-month extension of its modestly successful drilling limit, underscores how far away the market may be from a turnaround. Accordingly, the energy sector was the biggest loser of the morning, shedding nearly aggregate 1.5% through noon in New York.

As we head into the afternoon session, the Dow and NASDAQ are in positive territory, while the broad-based S&P 500 is slightly below its breakeven line. The final tallies will be decided after the Fed decision, however, with an anticipated hike likely already priced into the market. The only potential plot twist would be if the central bank modifies its near-term strategy. - Robert Harrington

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

   

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Before The Bell - The first two trading days of this busy week for Wall Street produced another one of those Monday/Tuesday market reversals that had become commonplace in 2016. For much of last year, the equity market bounced back and forth with neither the bulls nor the bears wanting to take a lead role until the Presidential election took place in November. Perhaps, the market, which has rallied sharply since last November is showing signs of fatigue and we may see a pickup of the Monday/Tuesday market reversals in the coming weeks.

Yesterday it was the bulls turn to shine, and all the major equity averages rallied, with the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index erasing Monday’s losses and then some, posting respective gains of 93, 45, and 11 points. The small- and mid-cap stocks chipped in with similar percentages gains during the bullish trading session. Overall, there was a plurality of winning issues on both the Big Board and the NASDAQ, to the tune of about two to one on each exchange.

From a sector perspective, it was nearly a clean sweep for the bulls among the 10 major equity groups. The telecommunications group was the lone decliner yesterday. Conversely, the leadership came from most the economically sensitive sectors, including the basic materials, energy, industrial, and technology groups. The technology issues put an end to a difficult two-day stretch, which saw the computer hardware and semiconductor stocks under significant selling pressure.

Now, the heat gets ratcheted up for traders, as investors will receive a number of very important economic reports today. Just moments ago, the latest data on retail sales and consumer prices were released. The Labor Department reported that the Consumer Price Index decreased 0.1% in May on a seasonally adjusted basis. Over the last 12 months, the all items index rose 1.9%. A decrease in the energy index was the main contributor to the monthly decrease in the all items index. The index for all items less food and energy rose 0.1% in May, as it did in April. Meanwhile, the advance estimates of U.S. retail and food services sales for May 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $473.8 billion, a decrease of 0.3% from the previous month. The benign inflationary data (yesterday’s producer price index figure was weak), along with today’s disappointing report on May retail sales, may give the Fed some pause about how many more times it will tighten the monetary reins this year.

The economic data was the appetizer for traders, with the main course coming this afternoon in the form of the latest monetary policy decision from the Federal Reserve. The prevailing consensus is that the central bank is going to raise interest rates by 25 basis points, which we think is already baked into market valuations. Thus, we think that the investment community will be most interested in what the Fed says in its accompanying statement about future monetary tightening. A more dovish than expected stance may prompt some buying, while a more hawkish posture may lead to some profit taking. Against this backdrop, we don’t anticipate traders making any meaningful moves in either direction ahead of the FOMC decision.

With less than an hour to go before the commencement of trading this morning, the equity futures are presaging a modestly higher opening for the U.S. equity market. Our sense is that we will not know the outcome of today’s trading until late in the session, as investors await the conclusion of the Federal Reserve’s two-day FOMC meeting and monetary policy decision. The Fed’s commentary may set the course for trading over the next few weeks ahead of the second-quarter earnings season. Stay tuned.   - William G. Ferguson 

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