Stock Market Today: Stocks Enter 5-Day Selloff After FOMC Meeting

Advertisement

U.S. equities finished lower on Wednesday as the Federal Reserve expressed nervousness and uncertainty about the state of the economy lowering its rate hike expectations and sounding a dovish note. Interest rates were left unchanged, as expected.

But the “dot plot” interest rate forecast was lowered to bring it into closer alignment with where the futures market is. While two 0.25% rate hikes are still expected for 2016, a number of individual policymakers lowered their personal forecasts for the year. Estimates for 2017 and 2018 were lowered.

Moreover, chairman Janet Yellen talked up the downside risks to the economy including the rising odds of a “Brexit” in Europe, the soft May jobs report, and general global uncertainties.

In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.2% and the Russell 2000 bucked the trend to gain 0.1%. The result was the fifth straight loss for large-cap stocks, the worst run since February. Treasury bonds were strong, the dollar was weaker, gold was little changed and crude oil lost 2.1% to close at $47.46 on inventory data.

061516-Dow copy

Material stocks led the way with a 0.4% while utilities and healthcare were the laggards, down 0.7%. Recreational equipment maker Arctic Cat Inc (NASDAQ:ACAT) gained 12.5% after being awarded nearly $50 million in a patent dispute lawsuit concerning an innovative off-throttle assisted steering technology. Whole Food Market, Inc. (NASDAQ:WFM) dropped 5% on a FDA warning about possible food contamination.

While the Fed news would normally be just the thing to get traders excited on the prospect of lower interest rates for longer, on the prospect of lower interest rates for longer, the mood seems to have changed. Now, there is fear that despite all the aggressiveness of central banks over the last few years — including negative interest rates in Japan and much of Europe — the business cycle continues to slow amid a corporate profits recession.

Stepping back, the Fed’s decision to raise rates last December for the first time since 2006 is looking increasingly like a one-and-done policy mistake by the Bank of Japan back in 2000. At the time, rates were taken from 0% to 0.25% before being cut back to 0.15% seven months later.

061516-Treasury copy

Bank of America Merrill Lynch economists believe the Fed is kidding itself with the two-hikes-in-2016 forecast and are looking for a one-and-done hike likely towards the end of the year.

But once inflation becomes a clear threat, driven by easier year-over-year energy inflation comparisons and ongoing job market tightening, the Fed’s dovish bias will be challenged in a way we haven’t seen yet.

061516-gs copy

For now, I continue to recommend investors focus on defensive positions and short-term short players in areas of specific weakness like big banks, as Wall Street titans like Goldman Sachs Group Inc (NYSE:GS) are getting hit by a combination of market volatility concerns and net interest margin worries as global long-term government bond yields crater as the Brexit vote nears, China’s currency weakens, and economic and profits data remains uneven.

Edge Pro subscribers are enjoying a near 50% gain in their July $150 GS puts.

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.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/stock-market-today-fomc/.

©2024 InvestorPlace Media, LLC