Stocks Settle Lower After Fed Meeting
Wall Street's data-inspired rally faded into the close
Wednesday, and the major indices finished slightly
lower after traders and analysts found themselves
struggling to discern the Federal Reserve's intentions
on the future direction of interest rates.
The Dow Jones Industrial Average, up nearly 180 points
earlier, squandered all of those gains to end down
11.81 points, or 0.09%, at 12,820.13. The S&P 500 shed
5.35 points, or 0.38%, at 1385.59, and the Nasdaq
Composite lost 13.3 points, or 0.55%, to 2412.80.
The story of the day was the Fed, which cut its fed
funds target by 25 basis points, taking the overnight
interbank lending rate to 2% and extending a series of
reductions that have lowered rates by 325 basis points
since September. The discount rate, or that at which
the Fed lends money to banks, was also lowered by a
quarter-point, to 2.25%.
In its decision, the Federal Open Market Committee,
the policymaking arm of the Fed, cited financial
markets that remain "under considerable stress," a
softening labor market, tight credit conditions and
the deepening housing contraction.
The downturn in the stock market came as the FOMC set
off a debate about whether it might pause the
rate-easing cycle or continue to cut. Notably, the Fed
removed language from its statement about risks being
weighted to the downside.
"The substantial easing of monetary policy to date,
combined with ongoing measures to foster market
liquidity, should help to promote moderate growth over
time and to mitigate risks to economic activity," the
FOMC statement said.
While a number of observers felt the central bank was
signaling that it will keep rates on hold, not
everyone was convinced.
Richard Yamarone, chief economist with Argus Research,
said, "The Fed's shut the door on rate cuts, but it's
unlocked. It's only unlocked in the event that there's
some financial calamity which forces them to reopen
the door, but for all intents and purposes, I think
this rate-cutting campaign has ended."
Brian Bethune, chief financial economist with Global
Insight, said: "If the Fed is right, then wonderful.
We're finally seeing the light at the end of the
tunnel. But if the Fed is premature in terms of the
decision to pause, then that could be problematic."
As a result, the market was having trouble digesting
the Fed's stance, he said. "I think there's a sense
that [traders would] love to believe this is the end.
But then our gut is telling us that it's too good to
be true, and that the headwinds we're facing suggest
that the Fed may not have written the final chapter
here."
Meanwhile, Marc Pado, U.S. market economist with
Cantor Fitzgerald, said the U.S. dollar weakened
because he believed the Fed didn't entirely set aside
the possibility of further rate cuts.
"People were looking for resistance to come in at
13,000 [on the Dow] anyway, so they started pounding
it," he said. "They weren't pounding it for any
fundamental reason. The upside trade had been made, so
they just got on it."
Pado noted that there are eight weeks between this Fed
meeting and the next. "That's a lot of time for things
to change, so I think the statement can be seen as,
they're comfortable with this through eight weeks, and
then they will reassess."
The Fed also mentioned the relentless upward drive in
commodities prices lately and said that it will
continue to monitor those developments carefully, but
is expecting inflation to moderate in coming quarters.
Still, said Pado, "the Fed could have gotten away with
something a lot firmer, especially with oil up around
$120. The key to the weakness in that statement was
that they still expect inflation pressure to subside
in the second half of the year."
Two members of the FOMC-- Richard Fisher of Dallas and
Charles Plosser of Philadelphia -- dissented from the
decision, preferring no cut at all. Both also
disagreed with the last reduction, citing inflationary
worries.
Ryan Detrick, senior technical strategist with
Schaeffer's Investment Research, said, "in the short
term, I think it really shows how much volatility Fed
days really do bring. It takes a couple of days for
things to play out."
Detrick also noted that the S&P appeared to be
approaching resistance at the 1400 level, and that
investors may be looking for another catalyst to bring
it over the top. "The Fed has done a lot for the
market, but what people want to see are economic
numbers turning around, and we haven't quite seen that
yet," he said.
As for equities, buyers had the edge earlier in the
day after the Commerce Department issued a preliminary
gross domestic product report that showed growth of
0.6% in the first quarter, a hair higher than
consensus and flat with last quarter. GDP numbers
often undergo revisions. If they remain substantively
accurate, though, they would indicate that the U.S.
economy, at least for now, has avoided a recession,
contrary to what many economists and consumers
previously believed.
Roughly 4.5 billion shares changed hands on the New
York Stock Exchange, with advancers beating decliners
by nearly a 5-to-4 margin. Losers edged winners on the
Nasdaq, as volume reached 2.19 billion shares.
Treasury prices were little changed, having pulled
back from more substantial early gains. The 10-year
note ticked up just 1/32 in price to yield 3.82%, and
the 30-year bond was flat in price, yielding 4.55%.
____________________________________________________________________________________
Be a better friend, newshound, and
know-it-all with Yahoo! Mobile. Try it now.
http://mobile.yahoo.com/;_ylt=Ahu06i62sR8HDtDypao8Wcj9tAcJ
____________________________________________________________________________________
Be a better friend, newshound, and
know-it-all with Yahoo! Mobile. Try it now.
http://mobile.yahoo.com/;_ylt=Ahu06i62sR8HDtDypao8Wcj9tAcJ
