Stocks suffered another volatile session on Wednesday as Janet Yellen wrapped up her final policy meeting as Federal Reserve chairman.
While the policy rate was left unchanged, as expected, the contents of the post-meeting statement were surprisingly hawkish — all but confirming an aggressive pace of rate hikes this year as inflation threatens to rise on a combination of a tight job market and the consequences of the weaker dollar (higher import and energy prices).
Equities initially shrugged this off, however, until former Fed chairman Alan Greenspan took to the airwaves on CNBC and said there were bubbles in both the bond and stock markets. This resulted in an drop in large-caps into negative territory before an end-of-day bid saved the bulls from a third consecutive day of losses.
In the end, the Dow Jones Industrial Average gained 0.3%, the S&P 500 gained 0.1% after trading up as much as 0.5% earlier in the session, the Nasdaq Composite gained 0.1% and the Russell 2000 lost 0.5%. Treasury bonds finished mixed in a volatile session. Gold gained a touch. Crude oil was weak on inventory and production concerns. And the dollar was mixed.
Breadth was mixed, with advancers outpacing decliners by a 1.2-to-1 ratio. But volume was more evenly matched. And there were 115 new lows on the NYSE vs. 91 new highs. Eight of 11 sectors finished in the green with real estate and utilities the top performers.
Boeing Co (NYSE:BA) gained 4.9% to a new high, powering the bulk of the market’s gains after reporting stronger-than-expected results and issuing strong forward guidance. Advanced Micro Devices, Inc. (NASDAQ:AMD) gained 6.8% after reporting solid results. And Electronic Arts Inc. (NASDAQ:EA) gained 7% on earnings.
Healthcare was the laggard for the second day following the report on Tuesday that Amazon.com, Inc. (NASDAQ:AMZN) is set to join with JPMorgan Chase & Co. (NYSE:JPM) and Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) to push in on their turf and lower medical costs for their employees.
After the close, Facebook Inc (NASDAQ:FB) slumped 5% after reporting quarterly results that beat expectations as investors focused in on a drop in daily active users in the U.S. and Canada — a sign the company is losing its footing amid a strategic decision to lessen its promotion of news in user feeds.
Conclusion
Despite the volatility of recent days, the Dow Jones wrapped up its best January since 1997 amid the worst start for the bond market in 25 years. The monthly gain for equities continues the powerful post-election total return uptrend, with the S&P 500 now on a 15-month win streak (a record) and it has posted gains in 22 of the last 24 months.
But the winds are changing, with stocks on track for their worst week since the week before the 2016 election amid the largest surge in the CBOE Volatility Index since the August 2015 market freakout related to the China currency devaluation.
Even Bitcoin is caught in the whirlwind, struggling to hold the $10,000 level amid the worst monthly loss since December 2013.
What lies ahead? Friday’s non-farm payrolls report is likely to reinforce the impression that the Fed, now under new leadership, will chart an increasingly hawkish course. Remember: Since the Fed started its rate hike campaign in December 2015, financial conditions broadly measured have actually eased. That’s the opposite of what policymakers want. And it raises the specter of a surprise inter-meeting rate hike in the coming months.
Technically, stocks remain extremely vulnerable to a pullback here amid ongoing deterioration in measures of breadth, overzealous sentiment and the drag from higher interest rates as a result of bond market weakness.
Check out Serge Berger’s Trade of the Day for Feb. 1.
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.
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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
