Stocks Close Roughly Flat After Recovering From Early Weakness – U.S. Commentary

Stocks Close Roughly Flat After Recovering From Early Weakness – U.S. Commentary

After recovering from an early move to the downside, stocks showed a lack of direction over the course of afternoon trading on Wednesday. The major averages spent the afternoon bouncing back and forth across the unchanged line.

The major averages eventually ended the day in negative territory. While the Dow fell 91.74 points or 0.4 percent to 25,706.68, the Nasdaq slipped 2.79 points or less than a tenth of a percent to 7,642.70 and the S&P 500 edged down 0.71 points or less than a tenth of a percent to 2,809.21.

The lackluster performance in the afternoon came as the Federal Reserve released the minutes of its September monetary policy meeting, which showed the central bank continues to favor a “gradual approach” to raising interest rates.

The assessment that the “gradual approach” remains appropriate comes as the meeting participants generally judged that the economy was evolving about as anticipated.

The Fed argued the “gradual approach” would balance the risk of raising rates too quickly, causing a slowdown in the economy, and raising rates too slowly, leading to inflation above the central bank’s 2 percent objective.

Looking ahead, the minutes said a few meeting participants expected rates would need to become modestly restrictive for a time.

A number of participants also determined it would be necessary to temporarily raise rates above the longer-run level in order to reduce the risk of a sustained overshooting of the Fed’s inflation target.

Meanwhile, a couple of participants indicated they would not favor adopting a restrictive policy stance in the absence of clear signs of an overheating economy and rising inflation.

During the meeting, the Fed decided to raise rates by a quarter point for a third time this year to 2 to 2.25 percent and forecast another rate hike before the end of the year. The central bank’s forecasts also pointed to three rate hikes in 2019.

The Fed’s assessment that the “gradual approach” to raising rates remains appropriate comes even as President Donald Trump has repeatedly attacked the central bank for hiking rates too quickly.

Trump continued his assault on the Federal Reserve in an interview with Fox Business on Tuesday, calling the central bank the “biggest threat” to his presidency.

Profit taking contributed to the early weakness on Wall Street, as traders cashed in on yesterday’s gains amid lingering uncertainty about the near-term outlook for the markets.

A negative reaction to the latest batch of earnings news also weighed on the markets, with tech giant IBM Corp. (IBM) falling after reporting third quarter earnings that beat analyst estimates but weaker than expected revenues.

On the other hand, shares of Netflix (NFLX) surged higher after the video streaming service reported better than expected third quarter earnings, revenues, and subscriber growth.

Negative sentiment was also generated by the release of a report from the Commerce Department showing a much bigger than expected pullback in housing starts in the month of September.

Sector News

Despite the recovery attempt by the broader markets, housing stocks ended the day significantly lower. The Philadelphia Housing Sector Index tumbled by 1.9 percent after jumping by 2.4 percent in the previous session.

Housing stocks pulled back after moving higher for three straight sessions, with the disappointing housing starts data weighing on the sector.

Considerable weakness was also visible among energy stocks, which moved lower along with the price of crude oil. Crude for November delivery plunged $2.17 to $69.75 a barrel following the release of a report showing an unexpected weekly jump in crude oil inventories.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index slumped by 1.6 percent, the Philadelphia Oil Service Index dropped by 1.4 percent and the NYSE Arca Oil Index fell by 1.1 percent.

On the other hand, tobacco stocks showed a substantial move to the upside on the day, driving the NYSE Arca Tobacco Index up by 1.6 percent. The index rebounded after closing lower for five consecutive sessions.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan’s Nikkei 225 Index shot up by 1.3 percent, while China’s Shanghai Composite Index climbed by 0.6 percent.

Meanwhile, the major European markets moved to the downside on the day. While the U.K.’s FTSE 100 Index edged down by 0.1 percent, the German DAX Index and the French CAC 40 Index both fell by 0.5 percent.

In the bond market, treasuries moved lower over the course of the session after initially showing a lack of direction. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.3 basis points to 3.179 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to reports on weekly jobless claims, Philadelphia-area manufacturing activity and leading economic indicators.

On the earnings front, Alcoa (AA), Kinder Morgan (KMI), Steel Dynamics (STLD) and United Rentals (URI) are among the companies releasing their quarterly results after the close of today’s trading.

Blackstone (BX), Danaher (DHR), Ericsson (ERIC), KeyCorp (KEY), Novartis (NVS), Philip Morris (PM), Snap-On (SNA), and Travelers (TRV) are also among the companies due to report their results before the start of trading on Thursday.

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