U.S. equities moved lower on Wednesday, pushing the Dow Jones Industrial Average back below the psychologically important 16,000 level, as disappointment with iPhone sales at Apple Inc. (NASDAQ:AAPL) overshadowed a slightly dovish tilt in the latest Federal Reserve policy statement.
In the wake of the first rate hike since 2006 in December, Fed policymakers acknowledge recent market turmoil, softening of global economic data and the downside risks to inflation from fresh lows in crude oil. But it wasn’t enough, apparently.
The selling pressure intensified after the statement was released. The cause? Chairman Janet Yellen and her cohorts continue to believe the drop in energy prices will have only a “transitory” effect on inflation (although they did remove the line “reasonably confident” form their inflation outlook).
For a market with a strong addiction to the Fed’s monetary morphine, this just isn’t dovish enough.
In the end, the Dow Jones lost 1.4%, the S&P 500 wafted 1.1% lower, the Nasdaq Composite dropped 2.2% and the Russell 2000 ended the day 1.5% lower.
Treasury bonds were mixed, the dollar was weaker, gold gained 0.5% and oil jumped 1.7% to close at $31.97 despite ongoing inventory builds. Traders have been encouraged by speculation of potential cooperation on production cuts between OPEC and Russia.
The rise in gold boosted the position in Barrick Gold Corporation USA (NYSE:ABX) recommended to Edge subscribers to a gain of 33.5% for the month to date.
Technology stocks were the laggards, down 2.5% as a group after AAPL lost 6.6% in response to a revenue miss and the weakest year-over-year iPhone sales growth since the product debuted in 2007. Adding to the concern was the company’s comments about global economic headwinds and challenges in China.
Boeing Co. (NYSE:BA) lost 8.9% on weak guidance. Priceline Group Inc (NYSE:PCLN) lost 6.1% after being downgraded by Goldman Sachs on tough competition and the drag from a stronger dollar. After the close, Qualcomm, Inc. (QCOM), eBay Inc (EBAY), and Texas Instruments Incorporated (NASDAQ:TXN) all reported earnings beats.
Facebook Inc (NASDAQ:FB) surged 7.5% after reporting a top- and bottom-line beat with earnings of 79 cents per share vs. the 68 cents expected. User growth was very strong, with monthly active users at 1.59 billion (up 14% from last year), daily active users at 1.04 billion (up 17%) and mobile daily users at 934 million (up 25%). Advertising revenue increased 57% from last year to $5.6 billion.
Technically, despite the day’s losses, the bulls seem to be gaining strength as the pattern of higher lower and higher highs started last week remains in place.
The percentage of S&P 500 stocks in uptrends is improving, up to 31% from a low of 23.4% last week. And the equity put-to-call ratio is dropping rapidly from highs not seen since the financial crisis of late 2008 as traders cover their short positions.
I expect market stabilization efforts by Chinese authorities (with the Shanghai Composite recovering from steep intraday losses overnight) and dovish commentary from Fed officials (now that the media blackout period surrounding Wednesday’s policy announcement is over), as well as OPEC-Russia production cut hopes to continue to keep stocks pushing higher for the next couple of weeks.
In response, I’ve recommended rebound rally plays like the Feb $75 calls in Procter & Gamble (PG) which are carrying a 73% gain so far for my Edge Pro subscribers.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
