Hi Everyone,
The stock market finished mixed for the second day in a row following a typical choppy “Fed-day”, with the Nasdaq continuing its record-setting run but the majority of stocks closing in the red. The Dow was down 282 or 1.0%, to 26,990, the Nasdaq gained 67, or 0.7%, to 10,020, while the S&P 500 fell by 17, or 0.5%, to 3,190. Decliners outnumbered advancing issues by a 4-to-1 ratio on the NYSE, where volume remained moderately heavy.
Traders said that today’s session was very similar to yesterday’s, as the striking divergence between the tech sector and the leaders of the past two weeks continued to turn heads. As one trader explained, “The fact that the Nasdaq closed above the historic 10,000 level for the first time on the day when Wells Fargo (WFC, -8.9%) and Bank of America (BAC, -5.7%) got slaughtered shows that the stock market is still not back to normal, despite the unprecedented post-crash rally.”
Even though today’s Fed announcements were far from earth-shattering, the Central Bank’s cautious economic outlook and its specific quantitative easing (QE) plans still made waves across asset classes. Treasury yield finished significantly lower, especially on the long end of the curve. The dollar finished at its lowest level in over three months, while gold hit a one-week high, all confirming the Fed’s dovish bias. Stocks traded in a relatively narrow range following the announcements, but from a broader perspective, the easy financial conditions should continue to support equities.
The Fed might hold its benchmark rate unchanged until the end of 2021, according to the statement, and while negative rates are unlikely, the $120 billion QE per month should keep a lid on Treasury yields. Chairman Jerome Powell also stated that the economy is facing long-term structural risks, and while the U.S. indicators have been surprisingly strong this month, it is still hard to gauge the damage in Europe and some of the emerging markets. Small-caps remained very weak for the second straight day due to the slight risk-off shift, so the pullback in the key cyclical issues might continue.
Asian and European stocks remained relatively weak today, as the gloomy economic forecast by the Organization for Economic Cooperation and Development (OECD) added to the growth-related fears. The doubts regarding the fate of the European Union’s (EU) proposed stimulus package also weighed on sentiment, as several EU members have already voiced their concerns about the plan’s financial burden. Tomorrow’s Eurogroup meeting could provide more information about the status of the plan, which has been a major catalyst behind the rally of the past two weeks. Thus, global risk assets could be in for a wild ride.
As always, have a great evening and stay tuned!!!
Joe
