After The Close - Stocks staged a turnaround this afternoon when investors received some encouraging news from the Federal Reserve. At the close the Dow Jones Industrial Average was up 98 points, the NASDAQ had risen 26 points, and the S&P 500 was 15 points to the good. Market breadth confirmed the renewed optimism, as winners topped losers by a clear-cut margin on the New York Stock Exchange.
From the opening bell until the 2:00 pm EDT announcement by the Fed that it was on course with its plans to reduce monetary stimulus, the bears were in charge. Losses weren’t heavy, though, reflecting the possibility that the central bank would come through with an upbeat assessment of current conditions, which largely turned out to be the case.
On point, the Fed indicated that growth had picked up in recent months and the labor market had shown further improvement. Those favorable developments are allowing the Fed to stay the course regarding the winding down of its innovative bond-buying program. The target now is for $35 billion a month in Treasuries and mortgage-backed securities to be purchased, down another $10 billion. Originally, the Federal Reserve was buying $85 billion a month in securities, but that program is due to be concluded by yearend.
Moreover, the outlook for interest rates remains benign. Short-term rate hikes are likely, beginning in 2015. However, it is unlikely that rates will rise to levels previously seen as normal. That may have provided Wall Street with an added dose of encouragement.
Among the stock market’s main sectors, the Fed’s view that the interest-rate environment would remain tame had a positive effect on shares of utilities. That defensive group was the leading sector this session. Utilities are also being helped by concerns about the growing list of countries where turmoil is on the rise, with Iraq and Ukraine in the forefront on that score.
Among individual stocks, shares of bellwether FedEx (FDX) perked up nicely after the company’s reported higher-than-expected revenues and earnings. The company also provided upbeat guidance about performance in its financial year that began this month. FedEx stock led the way in a strong transportation group.
Tomorrow brings fresh business data in the form of the weekly initial jobless claims figures and the nation’s leading economic indicators, where good news is seen as on tap. But the headaches caused by geopolitical concerns could resurface at any time. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
12:10 PM EDT - The major U.S. equity indexes are trading in the red as we pass the midday hour on the East Coast, with the Dow Jones Industrial Average leading the modest move lower. Overall, declining issues are leading advancers on both the Big Board and the NASDAQ, but the spread is narrow, especially on the NYSE. We think the overhang of the unrest in Iraq is holding back equities. There also may be some hesitation ahead of this afternoon’s monetary policy announcement from the Federal Reserve following the conclusion of its two-day Federal Open Market Committee meeting.
From a sector perspective, we are seeing some movement into the more defensive groups, with leadership coming from the utilities and telecommunications issues. (Bonds, which are also viewed as a safer holding, have seen a pickup in demand today.) We are additionally seeing an interest in the basic materials and the energy sectors. Within the basic materials space, the stocks of the steel, chemicals, and metals and mining companies are in favor. Conversely, some of the more economically sensitive sectors are lower, with the biggest laggards being the industrial and financial stocks.
As noted, the hot-button topic for investors remains the escalating unrest in the Middle East, especially in Iraq. Investors were spooked by a series of events this morning. Reports that rebels have taken over more cities in Iraq, that oil giants Exxon Mobil (XOM - Free Exxon Mobil Stock Report) and BP (BP) have removed staff from the area, and emerging reports that Iran is playing a big role in fractious Iraq have unnerved investors. The investment community will continue to closely monitor the situation because if the rebels were to take control of the oil-rich southern area in Iraq, it could lead to a sizable jump in oil prices, which would pose a threat to the performance of the global economies.
Meantime, the day has brought minimal news from the earnings and economic beats. On the earnings front, FedEx (FDX) and Adobe Systems (ADBE) reported solid results, while ConAgra Foods (CAG) and La-Z-Boy (LZB) disappointed investors. It was a quiet morning for the economy, but that will change this afternoon when we will get—at 2:00 P.M. (EDT)—the latest monetary policy announcement from the central bank. We don’t expect any surprises on this front, especially with some of the recent global economic downgrades from the World Bank and the International Monetary Fund. The Federal Reserve is likely to keep short-term interest rates near-zero. - William Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Stocks to Watch from The Survey – It’s another light day on the earnings front, but there are a few reports to be aware of. Notably, package delivery giant FedEx (FDX) released better-than-expected May-period results and struck an upbeat note regarding its near-term prospects. The stock is up moderately ahead of the bell, as a result. Investors were even more impressed with May-quarter financials from software developer Adobe Systems (ADBE), bidding the stock nicely higher in the premarket. It was not all good news, however, and investors appeared to take issue with preliminary May-quarter results from packaged foods company ConAgra (CAG), which were softer than anticipated. The company’s outlook did not reassure investors, either, and CGRA is indicating a notably weaker opening this morning. The same is true for shares of La-Z-Boy (LZB), as the furniture manufacturer’s top line did not live up to expectations in the April quarter.
In other news, shares of BlackBerry (BBRY) are up moderately ahead of the bell, due to speculation that the smartphone developer has formed a deal with online retailer Amazon.com (AMZN) that would give BlackBerry access to Amazon’s app store. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market posted a third straight win yesterday, and it clearly was the most impressive win in this modest string of victories for the bulls. On point, after just mixed to-slightly higher overall sessions last Friday and this past Monday, equities opened the latest session higher and save for a brief spell of minor backtracking early in the day, which served to push stocks into the minus column for a brief few minutes, equities remained nicely in the plus column for the rest of the day. In fact, the market generally added to the day's advance as the afternoon wore on before some orderly selling pared the best gains of the session near the close.
All told, by the end of the day, the Dow Jones Industrial Average had climbed 27 points; the Standard and Poor's 500 Index had gained four points; and the tech-heavy NASDAQ had risen by 16 points. But it was in the small and mid-cap sector where the real bullish action was, as the Standard and Poor's Mid-Cap 400 surged by 12 points, or close to 1%, while the small-cap Russell 2000 Index jumped almost 10 points. Most groups did well, with the financials turning in one of the better performances, led higher by the big banks.
The healthy advance evolved as investors seemed to shrug off some concerns over the sectarian conflict in Iraq, the continuing problems between Russia and Ukraine, and a pair of less-than-compelling economic issuances released earlier in the morning. On this last count, at 8:30AM (EDT) the Labor Department reported a larger-than-expected increase in consumer prices last month, with the CPI adding 0.4%. A gain half as large had been forecast. However, a pickup in inflation is not a clear negative these days, as it tends to dampen any fears of deflation, which appear from time to time. In all, inflation remains below the Federal Reserve's stated 2% target on a full-year basis. At the same time, the Commerce Department chimed in with surveys showing that housing starts and building permits, both of which had been expected to ease modestly in May, turned in slightly weaker performances than that. Although the month's housing results were not all that worrisome, unless the trends were to continue, they did cause investors to take notice. The somewhat dispiriting housing results helped to cap the day's final stock market gains, in our opinion. The higher inflation rate also hurt the bond market, with yields picking up some strength as the session concluded.
Elsewhere, the slight easing in tensions surrounding Iraq helped to cool the financial market's ardor for both gold and oil, with the former halting its six-day winning streak and the latter turning a bit lower, as well. Both of these closely watched indicators had pushed higher in recent days on the intensifying violence overseas.
Meanwhile, all of this was taking place as the Federal Reserve's latest two-day FOMC meeting was commencing. That get-together is to conclude this afternoon at 2:00 (EDT). At that time, it is expected that the central bank will continue to taper its monthly bond purchases, while continuing to keep short-term interest rates at near zero in an effort to breathe yet further life into the irregular business expansion. Anything off of that likely course could engender a major reaction in the markets, which appear to have settled onto a somewhat more orderly path following the brief, but sharp, setback suffered during the middle to latter stages of last week as the world's already fragile state weakened once again.
Finally, as we look out to a new day, we find that stocks in Asia were mixed overnight, with the session's lone notable gain coming on Japan's Nikkei, while equities are pressing a bit higher in Europe thus far this morning. Investors in Europe seem focused on the FOMC meeting, which, as noted, concludes this afternoon. And on our shores, the equity futures are now pointing to a slightly firmer opening when trading resumes on Wall Street in less than an hour from now. How the market ends the session, however, will likely be predicated on what the Fed says and does at 2:00 this afternoon. Meanwhile, investors figure to keep a wary eye on Iraq, where new attacks, reportedly this time on the country's largest oil refinery, were taking place. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.