On Wednesday, the minutes of the Federal Reserve’s April meeting revealed there was a strong possibility of an interest rate increase in June.
The Dow Jones Industrial Average, which had been up as much as 106 points just before the news, responded by quickly falling to end the day with a mere 3-point gain. The S&P 500 was also flat, and the Nasdaq gained 0.5%.
Regional banks fared even better since income from the interest rate spread has an even bigger impact on their earnings. KeyCorp (KEY) and Huntington Bancshares Incorporated (HBAN) both rallied about 5%, and BB&T Corporation (BBT) rose 3.6%.
Utilities were among the worst-performing stocks, falling 1.9%. Their relatively high dividends equate their returns with bonds, which were also hammered. The yield of the benchmark 10-year Treasury note jumped to 1.87% from 1.76% on Tuesday.
On the earnings front, Target Corporation (TGT) fell 7.6% after delivering a lower-than-expected outlook due to weaker consumer spending. However, Lowe’s Companies, Inc. (LOW) reported strong earnings and its stock gained 3.3%.
Crude oil lost 0.2% at $48.19 a barrel, and the U.S. dollar rose against the euro and the yen.
At Wednesday’s close, the Dow Jones Industrial Average was off 3 points at 17,527, the S&P 500 was flat at 2,048, the Nasdaq gained 23 points at 4,739, and the Russell 2000 added 5 points at 1,103.
The NYSE Composite’s primary exchange traded a below-average 780 million shares. This was partially due to a technical issue that suspended trading in almost 200 symbols for a short time. Total NYSE volume was 4.1 billion shares, and the Nasdaq crossed 1.9 billion shares.
On the Big Board, decliners outpaced advancers by 1.9-to-1, and on the Nasdaq, advancers led by 1.4-to-1. Block trades on the NYSE fell to 4,593 from 5,577 on Tuesday.
The S&P 500 hit an intraday low of 2,034.49, but a rally in the final 25 minutes of trading resulted in a slight gain and a minor reversal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR).
Volume increased slightly on what turned out to be a volatile session. The intraday high at 2,060.61 pierced the 50-day moving average at 2,058.27 but couldn’t hold it, and the index closed up less than a point at 2,047.63.
It is hard to know how long the S&P 500 will be stuck in the narrow trading range at 2,040-2,058.
As noted in Tuesday’s Daily Market Outlook, stocks have been able to withstand many “fears.” And on Wednesday, fear of an impending rate hike should have been enough to drive the S&P 500 through its low at 2,034 and stick there. Instead, a cavalry charge of buying swept prices to an unchanged close — a strong signal that the bulls are holding.
However, cash is still king until Mr. Market clearly breaks out one way or the other.
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.