As was widely expected, the Federal Reserve lowered interest rates today by 25 basis points, but that wasn’t enough to spark upside for equities. Nor was it enough for President Donald Trump who criticized the Fed for lacking “sense” and “vision” because it didn’t lower rates by 50 basis points.
Three Fed governors voted against today’s rate cut, prompting some investors to express concern about the path forward.
“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective,” the Federal Open Market Committee wrote in a statement.
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and expectations, and readings on financial and international developments.
So today the Nasdaq Composite slipped 0.1% while the S&P 500 added just 0.03%. The Dow Jones Industrial Average gained 0.1%. In late trading, half of the Dow stocks were pointed higher. The only sector in the U.S. that closed higher today was, unsurprisingly, utilities.
Small Winners Circle
There weren’t many Dow winners today and among that small group, the gains were, well, small. One surprise was JPMorgan Chase (NYSE:JPM). Financial services stocks usually benefit from higher interest rates, and JPM and its rival banks have recently been complaining about the effects lower rates have on their net interest margins. In late trading JPM was the only financial services name in the Dow trading higher.
Another surprise, though of the disappointing variety, was Merck (NYSE:MRK). This Dow component barely nudged higher despite some encouraging news about its Keytruda cancer treatment. Regulators in Australia, Canada and the U.S. approved Keytruda to treat advanced endometrial carcinoma.
This is significant news, but the stock barely moved higher today. Hey, it’s not everyday three major developed markets approve a cancer treatment on the same day.
“Merck said regulators approved the use of Keytruda with a drug called Lenvima, discovered by the Japanese company Eisai (OTCMKTS:ESALY), to treat some instances of advanced endometrial carcinoma, a serious condition for which patients currently have few options,” Josh Nathan-Kazis wrote for Barron’s.
Procter & Gamble (NYSE:PG) was a Dow winner today, and like the others, it was in modest fashion. P&G is one of the Dow’s best-performing names this year. And some traders are getting bullish about options on the consumer goods giant’s shares.
Yes, Apple (NASDAQ:AAPL) has been making a lot of appearances here in recent days — and the iPhone maker is back today. Wedbush released a note earlier today forecasting 185 million in iPhone 11 shipments for fiscal 2020. Analysts also wrote that pre-orders for the phone in the U.S. have been strong.
Up nearly 8% this month, Apple has been one of the best-performing Dow stocks in September.
Bottom Line on the Dow Jones Today
It’s clear that market participants are focusing on the Fed’s division. However, because the central bank did not cut by 50 basis points today, it has another 25 basis point cut in its back pocket. Chairman Jerome Powell overtly said that the Fed can deploy more rate reductions if the economy sours, which he doesn’t see happening right now.
Speaking of the economy, the Fed upped its 2019 gross domestic product forecast to growth of 2.2%. That’s up slightly from June’s estimate of 2.1%. For now, the central bank is standing firm on its forecast of 2% GDP growth in 2020.
As of this writing, Todd Shriber does not own any of the aforementioned securities.