Stocks fell Wednesday on a broad front following what many considered to be an unsatisfactory policy statement from the Federal Reserve. The Fed said it is “closely monitoring” global economies and markets, but it failed to say exactly how it planned to deal with them.
A portfolio manager quoted by The Wall Street Journal summed up the central bank’s position: “The Fed basically said that we are paying attention to markets and global developments, but we stick to our game plan” — i.e., interest rate increases.
According to data from the CME Group, Fed funds futures show investors see a 29% likelihood of a rate increase at the March policymaking meeting.
The Fed overshadowed a rally in oil prices. Despite a 2.7% jump in crude to $32.30 a barrel, the Dow Jones Industrial Average was down 1.4%, the S&P 500 dropped 1.1% and the Nasdaq lost 2.2%.
Boeing Co (BA) plunged 8.9%, its biggest one-day loss in roughly 15 years. While the company reported better-than-expected earnings, its 2016 guidance disappointed.
The U.S. dollar fell against key rivals including the euro, with the buck down 0.3% to $1.0899. The yield on the 10-year Treasury note rose to 2.02% from 2.01% om Tuesday.
At Wednesday’s close, the Dow Jones Industrial Average was down 223 points at 15,944, the S&P 500 fell 21 points to 1,883, the Nasdaq lost 100 points at 4,468, and the Russell 2000 was down 15 points at 1,003.
The NYSE Composite’s primary exchange traded 1.1 billion shares with total volume of 4.7 billion. The Nasdaq crossed over 2 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, decliners led by 2.3-to-1. Block trades declined to 5,686 from 5,765 on Tuesday.
Facebook Inc (FB) jumped more than 12% in after-hours trading after the social media company posted more than $1 billion in quarterly net income for the first time ever and fourth-quarter revenue rose 52% year over year.
The S&P 500’s lower close at 1,859 last week puts the index in a technical downtrend. But the recovery above the August closing low could put it in a position to overcome that low. The MACD gave a buy signal, which is odd on a down day.
Note: When dealing with the S&P 500, I will not use the terms “bull” and “bear” since they apply specifically to the Dow indices.
As for the Dow Jones Industrial Average, it has not yet penetrated its August closing low at 15,666, so it is not in a bear market. But volume is higher on the sell side than the buy side, and despite a MACD buy signal, I’d still sell into rallies. However, it is notable that selling volume was lower Wednesday despite the index’s triple-digit decline.
Conclusion
On the surface, Wednesday’s strange market action looks like an emotional reaction to the lack of a strong policy statement from the Fed. Well that, and it’s a classic example of buy the rumor, sell the news. Neither breadth, block trading nor volume confirm lower prices.
I believe the keys to the future direction of the stock market are oil prices and the dollar, and crude appears to be forming a bullish “V” bottom.
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.
