What happened in the stock market today? Stocks traded near flat throughout most of the session, as investors continue to digest earnings results and awaited the Fed’s announcement at 2:00 p.m. ET.
Late late week, no one seemed to care about the Fed given the slew of earnings reports. Even Tuesday, it didn’t seem to draw much interest, with Apple (NASDAQ:AAPL), Advanced Micro Devices (NASDAQ:AMD) and others on the calendar of quarterly results.
But on Wednesday, the Fed mattered.
What Did the Fed Do Now?
Last September, the Fed raised interest rates, indicated another rate hike in December and talked about a series of rate hikes in 2019. That blew up in the Fed’s face, with equity markets falling about 20% from peak to trough in less than three months.
That changed the course of Fed policy, as it cut rates today for the first time in more than a decade.
Markets were largely pricing in a 25 basis point rate cut, which is exactly what the Fed gave us. More so, the Fed ended its balance sheet reduction two months early and used the term “accommodative” in its announcement. To any long-time observer, that implies more rate cuts in the future — which is a good thing considering that markets are pricing in another cut in September — and a more dovish stance overall.
That’s what makes this whole reaction one big “oof.”
The Fed didn’t come out wildly dovish, but it was a more dovish stance than the market appeared to anticipate. So why the selloff? Because Fed chairman Jerome Powell seemingly refuses to get some much-needed Q&A coaching.
After these types of Fed announcements, the chairman is called upon for a Q&A session. Routinely, Powell fumbles through these sessions and seems to contradict both himself and the Fed statement at times. It leads to confusion, frustration and uncertainty.
When those sentiments are injected into the market, we get volatility. So it wasn’t so much what the Fed did that tripped up investors, it’s how they said it in the follow up.
Looking Forward
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The announcement sent a shiver through markets, even though the losses looked minor. The SPDR S&P 500 ETF (NYSEARCA:SPY) fell 1.09%, the PowerShares QQQ ETF (NASDAQ:QQQ) fell 1.38% and the iShares Russell 2000 ETF (NYSEARCA:IWM) fell 0.81%.
Both the SPY and the QQQ are holding onto their major breakout levels, at $295 and $191, respectively. On the flip side, both ETFs fell below their 20-day moving averages for the first time in almost two months.
Investors are left with two choices now: Either hold those breakout levels and reclaim the 20-day moving averages or continue lower and test the 50-day moving average.
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If not for the Fed injecting added volatility into the market, I would think the latter is more likely than the former. However, with investors selling first and asking questions later, a 50-day test wouldn’t be all that surprising. Let’s see how stocks trade on Thursday and Friday to get a better feel.
Movers in the Stock Market Today
Apple was a big focus on the day, with the company beating on earnings and revenue estimates for its fiscal third quarter. Further, revenue guidance of $61 billion to $64 billion came in well ahead of consensus expectations for $60.9 billion in sales.
That gave a jolt to the stock, which initially rallied north of $220 in morning trade. The action is reminiscent of last quarter. Apple delivered a solid result with better-than-expected guidance. A trade-related Twitter tirade from President Trump sent stocks reeling soon after though, as the market began a steady and painful decline for the month of May.
Again, Apple’s post-earnings results are being soured by an outside catalyst, although hopefully August won’t be as bad as May. On the plus side, Apple finished higher by 2% on the day.
Another bright spot was Nordstrom (NYSE:JWN), which jumped 7.9% on reports that the Nordstrom family is looking to increase its stake. Currently owning roughly one-third of the company, reports suggest the family wants to eclipse the 50% mark. Remember, the board rejected the family’s go-private offer at $50 per share last year. After opening the day under $31, one could say the board made a mistake in that day.
General Electric (NYSE:GE) ended the day mixed, falling 67 basis points after the company beat on earnings and reported in-line revenue. The company also raised its earnings guidance and looks more optimistic on free cash flow. The stock looked set to rally, but stumbled in morning trading as investors still have some reservations.
If buyers do come flocking to it, here’s the new trade setup.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL.
