On Wednesday, small- and mid-cap stocks outperformed the big caps in a session that reflected the Federal Reserve’s mixed view of the economy. But even the large-cap stocks opened higher following a better-than-expected Q2 GDP.
Despite the strong GDP numbers, the Fed persisted in a relatively easy-money strategy, saying it would reduce its purchases of mortgage and Treasury bonds by $10 billion to $25 billion monthly. Although this was expected, some economists thought that a $15 billion reduction was likely and that there might be an announcement on a short-term interest rate increase.
Instead, we were told rates would stay low for “a considerable time after the asset purchase program ends.” Philadelphia Fed President Charles Plosser dissented, saying the “considerable economic progress” should have resulted in more guidance on rates.
The net result was that five sectors of the S&P 500 declined and five advanced. Technology (chiefly chipmakers), health care led by biotech stocks, consumer discretionary and financials were higher.
Despite the lack of guidance on interest rates, the yield on the 10-year Treasury note closed at 2.55% in its biggest single-session gain since November. Utilities lost 1.7%, and other defensive sectors were lower, as well.
Twitter (TWTR) jumped 20% following a strong quarterly report and Amgen (AMGN) rose 5.4% after topping estimates. AstraZeneca (AZN) gained slightly after agreeing to buy the rights to drugs from Almirall.
At Wednesday’s close, the Dow Jones Industrial Average fell 32 points to 16,880, the S&P 500 rose less than a point to 1,970, the Nasdaq rose 20 points to 4,463, and the Russell 2000 gained 5 points at 1,147. The NYSE’s primary market traded 680 million shares with total volume of 3.4 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, advancers were ahead by 1.4-to-1.
The Nasdaq redeemed itself Wednesday as it outperformed its big-cap rivals, broke above a clearly defined right triangle, and held above its 20-day moving average. Its advance was supported by a double-bottom at 4,352 and an uptrending 50-day moving average, currently at 4,354. The index now threatens to break the double-top high at 4,485, just 22 points above the day’s close.
In the previous Daily Market Outlook, I charted the Russell 2000, concluding that the small-cap index had to “hold above its 200-day moving average.” It closed at 1,146.57, several points above its 200-day at 1,144.47. Its next objective is the 50-day at 1159.16.
For several days now, the small- and mid-cap stocks have taken the lead, a reminder of last year’s pattern. A break above the double-top at 4,485 in the Nasdaq should convince investors that the bull is back and that the lead is again in the hands of stocks that are capable of providing further trading gains.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.