Equities trim heavy early declines
Stocks ended modestly lower Wednesday after the release of minutes from the Federal Reserve’s last policy meeting, but remained above session lows. The weaker tone came a day after major indexes bounced back from technically oversold conditions, posting their biggest one-day jump since late March.
How did the benchmarks perform?
The Dow Jones Industrial Average DJIA, -0.36% fell more than 300 points in early trading, before paring those losses and briefly edging into positive territory. The Dow finished the day down 91.74 points, or 0.4%, at 2706.88. The S&P 500 SPX, -0.03% lost 0.71 point, or less than 0.1%, falling to 2,809.21, while the Nasdaq Composite Index COMP, -0.04% shed 2.79 points to close at 7,642.70.
Wednesday’s action followed a strong day for markets, with the Dow and the S&P both rising 2.2%, and the Nasdaq climbing 2.9%.
What’s drove the market?
The minutes of the Fed’s September meeting, which saw policy makers deliver a widely expected quarter-point increase, showed that a majority of policy makers believe interest rates must continue to rise until policy becomes restrictive.
Minutes aren’t ordinarily a source of volatility, however, the outsize focus on Treasury rates—notably a rise in the yield on the 10-year Treasury note TMUBMUSD10Y, -0.03% to a seven-year high last week—ensured they were closely read. Meanwhile, the market continued to closely watch negotiations between the European Union and Britain as it attempts to exit from the trade bloc with a trade agreement in hand. The potential for a clash between Italy and the European Union over Rome’s budget plans also remains in the spotlight.
Traders also took notice of an interview Commerce Secretary Wilbur Ross gave to CNBC on Wednesday, in which he said that U.S.-China trade talks are on “hiatus” for now, but not at an impasse.
Which data were in focus?
The number of new homes under construction fell 0.6% to a seasonally-adjusted annual rate of 1.201 million in September. The rate was 1% below last year’s levels. The numbers nearly matched the consensus forecast of 1.208 million produced by a MarketWatch survey of economists.
Permits for construction of new homes also fell 5.3% in September from the month before to a seasonally adjusted annual rate of 1.241 million. The number represents a 3.7% increase year-over-year, but still was weaker than average analysts expectations polled by FactSet for a pace of 1.28 million new permits.
What were analysts saying?
“The market is interpreting the Fed minutes as slightly hawkish,” said Lindsey Bell, investment strategist with CFRA. For a while the market didn’t believe the Fed was serious about raising rates four times this year and three times in 2019, she said. But that changed after hawkish comments from Fed Chairman Powell earlier this month. “The FOMC minutes are another reminder that the Fed is serious, and isn’t going to let President Trump bully them” into a more dovish stance, said Bell, referring to comments the president made this week criticizing Fed policy, the latest in a string of criticisms.
“We had a big day yesterday, and today’s open shows that volatility is not going away,” said Jeff Carbone, co-founder of asset management firm Cornerstone Wealth Group. With interest rates markedly higher today than even one month ago, investors will remain cautious, and the early morning downturn is evidence of this change in sentiment, he said. “But when you look at the fundamentals of the economy and the market, we expect the market to ultimately move upward.”
Mark Espisito, chief executive of Espisito Securities shared this optimism. “We still see a strong earnings season and a strong stock market for the next year or so,” he said. “Even when there is a pullback like this morning, it’s met with resistance.”
He argued that the reversal of steep early morning losses in the major indexes is proof that there is “consistent buying interest when markets move down,” because investors are still betting on a strong economy and strong earnings to power stocks higher.
Which stocks were in focus?
Shares of Netflix Inc. NFLX, -0.97% rose a day after the company reported better-than-expected quarterly results. The stock climbed 5.28%
Investors soured on shares of International Business Machines Corp. IBM, -0.29% after the company announced a revenue miss following the close on Tuesday. Shares fell 7.63%.
Shares of United Continental Holdings UAL, +0.89% rose 5.95%, following news that executives raised their forecasts for 2018 profits, even as it missed analysts’ third quarter EPS estimates.
Auto parts retailers had a rough day, with AutoZone, Inc. AZO, -7.60% ranking as the S&P’s second biggest loser Wednesday, down 7.6%. Advance Auto Parts, Inc. AAP, -5.22% was also down 5.22%.
Tesla TSLA, -1.21% stock fell 1.7%, following an SEC filling by the company saying it plans to issue $20 million in stock that will be bought by the company’s founder, Elon Musk. The stock initially popped on the news, but reversed course after the market opened. The filing also announced that a federal court approved a settlement between Tesla, Musk and the Securities and Exchange Commission that has the company and its founder each paying $20 million in fines related to Musk’s proposal to take Tesla private.
Home Depot HD, +0.26% shares slipped 4.3%, on falling housing starts data and new housing permit numbers that missed expectations.
Shares of companies in the cannabis industry garnered investor interest on the first day of legal, recreational marijuana use across Canada. Shares of three of four major, publicly listed cannabis firms were down sharply in early morning trading, though all recovered some from session lows.
Aurora Cannabis ACB, -2.93% was hit hard in early action, falling 12.5%, before paring losses to end the day down 3.4%.
Cronos Group CRON, -6.56% stock was down 6.56% at the market close, while Canopy Growth Corporation WEED, -4.28% was down 4.28%
Shares in Aphria, Inc. APH, +3.80% however, rose 3.8% during Wednesday trading.
How did other markets trade?
Asian stocks ended higher, with Japan’s Nikkei NIK, -0.80% jumping 1.3%, extending Tuesday’s rally in the U.S., while European indexes ended lower as Italian and British political uncertainty buffeted stock benchmarks.
Crude-oil prices CLX8, -0.97% fell, while gold prices GCZ8, +0.01% were up 0.4% as the U.S. dollar index DXY, -0.10% rose 0.6% Wednesday.
