Markets ended in negative territory on Wednesday following the release of minutes from Fed’s latest policy meeting. Bond rates surged to a 4-year high following the release of the minutes and weighed heavily on equities. Earlier in the session, major benchmarks had rallied after the minutes expressed concerns on the lack of broad-based wage gains.
The Dow Jones Industrial Average (DJI) decreased 0.7%, to close at 24,797.78. However, the S&P 500 fell 0.6% to close at 2,701.33. The tech-laden Nasdaq Composite Index closed at 7,218.23, losing about 0.2%. The fear-gauge CBOE Volatility Index (VIX) decreased 2.8% to close at 20.02.
A total of around 6.96 billion shares were traded on Wednesday, lower than the last 20-session average of 8.49 billion shares. Decliners outnumbered advancers on the NYSE by a 1.17-to-1 ratio. On Nasdaq, a 1.24-to-1 ratio favored advancing issues.
How Did the Benchmarks Perform?
The Dow tumbled 167 points to end in the red. The blue-chip index had earlier rallied 303 points at its session high. For the month, the Dow industrials are trading 5.2% down. Also, the Nasdaq declined 16 points to also finish in negative territory.
Meanwhile, the S&P 500 shed almost 15 points to end in negative territory. Of the 11 major segments of the S&P 500, only two finished in the green. While the laggards were led by real estate and energy sectors, financials led the gainers. The Real Estate Select Sector SPDR (XLRE) and the Energy Select Sector SPDR ETF (NYSE:XLE) were down 1.8% and 1.7%, respectively. However, the Financial Select Sector SPDR ETF (NYSE:XLF) rose a paltry 0.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The three major indexes along with the broader market suffered losses following mixed signals from the Fed at the end of its policy meeting on Wednesday. This led to a surge in yield on the benchmark 10-year Treasury note, which rose to a 4-year high at above 2.95%. This surge in yields in turn weighed heavily on equities paring gains notched up earlier in the session.
Fed Indicates a Series of Upcoming Rate Hikes
At the end of the Federal Open Market Committee (FOMC) meeting, Fed officials stated that most members had revised their economic growth projections upward from the last meeting in December. Officials also stated that continuing economic expansion and rising inflation would warrant a gradual increase in interest rates in the future.
Moreover, the minutes also stated that gradually increasing the interest rates would also help in sustaining the current economic growth as well as ‘balance the risks to the outlook for inflation and unemployment.’
Members of the FOMC also commented that ‘upside risks’ to economic growth had increased due to a combined effect of tax reforms, an uptick in consumer spending and consumer confidence and other indications which showed that the economy had maintained an uninterrupted pace of growth. This is what led the Fed officials to increase projections on economic growth.
Coming to inflation, the officials stated that core personal consumption (excluding food and energy) would increase "notably faster in 2018." Notably, personal consumption expenditure index is the preferred measure of inflation that the Fed uses.
Further, members also commented that the Fed had actually ‘underestimated’ the effects that tax reforms would have on consumer spending and economic growth. Also, they remained highly skeptical about how much of an ‘impact’ tax reforms would have on wage growth. Following the tax cuts, several companies have issued bonuses to their employees. But the long term impact of these recent cash transfers remains unclear at this point.
Economic Data
On the economic data front, existing home sales for the month of January came in at 5.38 million units, below the consensus estimate of 5.61 million units. In December, the metric came in at 5.56 million units.
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