Stocks and bonds got a boost Wednesday from the Federal Reserve’s decision not to raise interest rates and a signal that increases would be slower than analysts expected.
After lagging ahead of the Fed’s announcement, stocks jumped, regaining earlier losses and closing with a modest gain. Fed Chair Janet Yellen said the economy had some weak points, including room for improvement in the jobs market, and that the central bank would consider all economic data before making a decision to increase rates.
The yield on the U.S. 10-year Treasury note fell slightly to 2.31%, as bonds rose in price. Gold futures were up 0.6% to $1,187.60 an ounce in aftermarket trading following the FOMC minutes, and crude oil fell 0.1% to $59.92 a barrel.
In Europe, the focus was still on Greece, whose Athex Composite index fell 3.2%. Germany’s DAX was down 0.6% and France’s CAC 40 lost 1%.
Allergan PLC (AGN) announced it will buy Kythera Biopharmaceuticals Inc (KYTH) for $2.1 billion, and KYTH jumped 22.1%.
AT&T Inc. (T) is the target of a FCC investigation for “allegedly deceiving consumers about unlimited wireless data plans.” A spokesman said the government plans to fine the company $100 million. AT&T shares closed the day up 0.4%.
FedEx Corporation (FDX) fell 3% as it missed analysts’ estimates by a wide margin. However, earnings were impacted by non-recurring items, which included pension accounting, a write-down of aircraft assets and an increase in its legal reserves.
At Wednesday’s close, the Dow Jones Industrial Average gained 31 points at 17,936, the S&P 500 rose 4 points to 2,100, the Nasdaq gained 9 points at 5,065, and the Russell 2000 fell 1 point to 1,268.
The NYSE’s primary market traded about 700 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board and Nasdaq, advancers led decliners by 1.1-to-1.
The iShares Dow Jones Transport. Avg. (ETF) (IYT) indicates that the economic picture in the second half of the year is more negative than positive. This supports the Fed’s assessment of the economic future and its reluctance to raise rates.
Note that IYT is holding onto a triple-bottom, but just barely, at $148. Selling has diminished to “heavy” from “very heavy,” and that is a positive. But a death cross preceded the rush to sell, and that is generally considered to be a longer-term negative.
Rallies will be up against some thick overhead, and that tells us the economy could take longer than anticipated before solid earnings bail out the market.
Conclusion
Following the Fed’s “non-announcement,” buyers once again rescued the market from a breakdown. It’s almost been too many times to count.
But European markets ignored the Fed and focused on the Greek tragedy, falling sharply in response to the leftist crowds outside Greece’s parliament.
Brian Wesbury, an economist I admire, addressed the Greek mess with a recent article called, “Greece is Detroit, Not Lehman.” His point was that despite all of the noise coming from that unfortunate land, a Greek default will not cause a world panic. Serious, yes, but not devastating. He gives five reasons why, but they boil down to this: Greece’s economy is small, roughly the size of Detroit’s; Greece has had economic problems for over 2,000 years; and Greece’s economic woes have been more than “discounted” by Europe and the world.
So let’s focus on what really matters, and that is the future of the U.S. economy. Today’s chart of IYT and the Fed’s reluctance to raise rates are not good news. But from a technician’s point of view, the Fed’s focus on economic results that have a direct impact on corporate earnings is appropriate.
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.
