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After The Close - The stock market opened lower this morning, but managed to partially pare its losses in the afternoon. By the end of the day, the Dow Jones Industrial Average was down about 15 points; the broader S&P 500 Index was off five points; and the NASDAQ was lower by 29 points. Market breadth was still quite negative, with decliners well ahead of advancers on the NYSE. Most market sectors retreated, with sizable losses in the energy and basic materials issues. However, the industrials and the utilities managed to advance a bit today.

Traders received quite a few economic news items this morning. Specifically, initial jobless claims fell to 237,000 for the week of June 10th, which was a favorable reading. Elsewhere, the Empire Manufacturing Survey, which tracks the economy in the New York region, provided a reading of 19.8 during the month of June, representing a substantial improvement over the May figure. Finally, industrial production remained unchanged during the month of May, which more or less met expectations.

Elsewhere, a few leading corporations posted their quarterly financial reports over the past 24 hours. Of note, shares of Jabil Circuit (JBL) moved lower, in response to a mixed report. In addition, shares of The Kroger Co. (KR) tumbled as investors reacted to a weak outlook.

Technically, equities have been holding up reasonably well lately. However, some fatigue may be setting in, as further gains may be getting harder to achieve and the market seems to be somewhat volatile. - Adam Rosner

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

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12:00 PM EDT - The U.S. equity market was characterized by broad-based selling on Thursday morning, as investors processed the hawkish tone taken by the Federal Reserve yesterday afternoon after it announced its interest rate increase. Large- and small-cap issues both struggled to turn around their fortunes in the morning hours, as recent disappointments on the business beat also helped to stoke some concerns for the overall health of the market.

Though the central bank followed through on consensus expectations when it increased the federal funds rate by 25 basis points, to 1.25%. Further, it reaffirmed its plan to augment the rate once more in 2017. Still, the bears have appeared more than a bit emboldened since the announcement, despite the tentative plan to enact as many as three more hikes next year. The primary reason for this downward trend is likely the disappointing retail and consumer price updates from yesterday. These developments may give some pause to the Fed in its future deliberations, especially in the event more misses occur on the business beat. As of this morning, the next hike is expected during the December summit.

The morning sell off was felt in all ten of the major market sectors, with basic materials and technology faring especially poorly. The latter was also a primary drag on the Dow Jones Industrial Average, which shed more-than 100 points at its intra-morning low, as the share prices of both Apple (AAPL - Free Apple Stock Report) and Alphabet (GOOG) came under pressure. Elsewhere, energy continues to struggle, with U.S. crude down today on global oversupply concerns and a less-than-satisfactory domestic inventory reduction rate. OPEC’s nine-month drilling limit extension has done little to meaningfully address this international concern.

So, with half a day of trading left, we believe the bulls will pare some of these losses as the afternoon progresses. Each of the three major U.S. indexes spent the morning in the red, though there were signs of a slight recovery as the noon hour approached. Market breadth still heavily favors declining shares (by a nearly 3-to-1 margin), however, underscoring the selling pressures dominating today’s trade. - Robert Harrington

As 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 U.S. equity market started yesterday’s session modestly to the upside and held those gains most of the morning and into the early afternoon hours. The indexes were not too far removed from the neutral line at any point during the first half of the session, as traders were reluctant to make any major moves ahead of the conclusion of the Federal Reserve’s FOMC meeting. Then the decision came at 2:00 P.M. EDT, and there was a minimal initial reaction as traders had factored in that the central bank was going to raise rates by 25 basis points, which it did. However, the selling then picked up on what seemed to be a more hawkish tone to the prepared statement by the Fed. But in the last hours the bulls reappeared and helped to pare the losses on most of the averages and pushed the Dow Jones Industrial Average into positive territory.

Thus, at the closing bell, the Dow Jones Industrial Average was 46 points higher, while the tech-heavy NASDAQ and the broader S&P 500 Index were down 25 and two pints, respectively, but well off of their intra-day lows. The selling was slightly more pronounced in the small- and mid-cap sectors. Declining issues led advancers on both the Big Board and the NASDAQ, but the margin narrowed into the close. The Fed news—and its effect on the dollar—weighed on the basic materials and energy sectors, which were the biggest laggards among the 10 major equity groups. A significant drop in oil prices hurt the oil and gasoline stocks as well. The technology issues were also out of favor late in the session. Conversely, there was some modest buying in the more defensive healthcare, consumer staples, and utilities groups.

As noted, yesterday’s big new was the Federal Reserve’s decision to raise the federal funds rate by 25 basis points, to 1.00% to 1.25%. In the accompanying monetary policy statement, the lead bank said that one more interest-rate hike is likely in 2017 and there is the possibility of three more rate increases next year.  Although this measured increase will leave the accommodative monetary policy in place, the Fed’s acknowledgement that it plans to reduce its balance sheet, starting later this year, was deemed a hawkish maneuver. The Fed commentary about paring its balance sheet by selling bonds was not good news for the bond market—and in the long run may push yields on fixed income securities higher. The Fed is trying to guard against creating an asset bubble, which would be bad news for the stock market. The last two asset bubbles bursting (technology in 2002 and housing in 2009) prompted some heavy selling in the U.S. equity market.

The Federal Reserve news followed disappointing reports earlier in the day on consumer prices and retail sales. Both measures fell in May. The consumer price drop was significant and it, along with weak producer pricing data on Tuesday, may have caused the Fed to change its language on inflation, as it noted that the rate of price increase is now running below its 2% target. Despite solid job growth and increases in household spending, the pricing data could give the central bank some pause with regard to the number of near-term rate hikes. Overall, the central bank noted that the economy is improving, continuing to expand at a moderate pace.

The Fed news is now in the rearview mirror, but the effect on trading may be just starting. The more hawkish stance by the central bank seems to have equity traders a bit skittish this morning. With less than an hour to go before the start of the new trading day stateside, the equity futures are indicating a lower opening for the U.S. equity market. Given that we are still three weeks away from the start of second-quarter earnings season, the focus of the investment community may be on the Federal Reserve and the contentious dealings in Washington D.C., which may give the bears an opportunity to make a statement after a significant market rally since last November. 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.