U.S. equities finished mixed on Wednesday amid relatively quiet trading — a reprieve from the heavy volatility of the past few sessions. Investors remain on edge ahead of policy decisions from the Bank of Japan and the Federal Reserve next week, a chaotic U.S. presidential election and the upcoming expiration of September options on Friday.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 Index dropped a tenth of a percent, the Nasdaq Composite fell 0.4% and the Russell 2000 ended the day 0.1% lower. Treasury bonds were stronger, giving to relief to the long end of the yield curve. The dollar was mostly lower. Gold gained 0.2%, ending a five-day losing streak. And oil fell another 2.9% to continue a recent bout of weakness.
Energy stocks were the laggards, as crude oil was hit by larger-than-expected refined product inventory builds. Tech stocks led the way with a 0.6% gain. Macy’s Inc (NYSE:M), which has been recommended to Edge subscribers, gained 1.5% thanks to an upgrade by analysts at Citigroup Inc (NYSE:C) on attractive free-cash flow and dividends.
Ford Motor Company (NYSE:F) fell 1.9% after lowering its projection of pre-tax profit in 2017 on increasing investments and costs and plateauing demand. Monsanto Company (NYSE:MON) gained 0.6% on a deal to be acquired by Bayer in a $66 billion deal.
With a September interest rate hike from the Fed effectively off the table, after a number of weak economic data points, there remains intense speculation about what the Bank of Japan will do next week. Remember that a big reason for much of the recent market volatility were reports that officials there are looking at raising long-term interest rates as a way to minimize the costs of its negative interest rate stimulus regime.
The problem is, with long-term interest rates already so low, any increase will result in painfully large declines in Japanese government bond prices that could result in forced selling, even higher yields, and eventual market panic.
Headlines today focused on the rising chances the BoJ will work to push short-term interest rates even deeper into negative territory, moving away from a focus on bond buying.
On a technical basis, the Dow has for the second time bounced off of critical support near the 18,000 level, a threshold that marked resistance between April and July.
Unless the BoJ disappoints, watch for a relief rally into the early part of October as a continuation of cheap money stimulus lifts spirits before fresh concerns about corporate earnings, economic vitality and the outcome of the U.S. presidential election weigh.
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.
