Stock Market Rides Taper Rollercoaster On Wednesday

The stock market had a wild rollercoaster ride on Wednesday, with the 2:00 release of the minutes from the July FOMC meeting. Investors bit their nails as spin doctors with diverging perspectives claimed to see their own opinions expressed in the minutes.

The major stock indices spent the morning in the red after the release of quarterly earnings reports from retailers brought bad news, after having done the opposite on Tuesday. Staples (SPLS) saw its share price sink more than 15 percent after its earnings miss and weak forecast. Target (TGT) fell 3.61 percent after reporting disappointing earnings.

Immediately after the release of the FOMC minutes at 2:00, stocks sank as commentators interpreted the minutes to confirm that the dreaded taper of the Fed’s bond-buying will commence in September. Within a half-hour, taper opponents were encouraged by the following passage, which was seen as a hint that the Fed might follow the suggestion by FOMC member Charles Evans to look beyond the headline number from the non-farm payrolls report for readings on the strength of the employment situation:

However, other measures of labor utilization – including the labor force participation rate and the numbers of discouraged workers and those working part time for economic reasons – suggested more modest improvement, and other indicators of labor demand, such as rates of hiring and quits, remained low. While a range of views were expressed regarding the cumulative improvement in the labor market since last fall, almost all Committee members agreed that a change in the purchase program was not yet appropriate.

Nevertheless, by 3:15 the punditocracy conceded that a September tapering seemed likely. At that point, stocks sank.

The Dow Jones Industrial Average (DIA) lost 105 points to finish Wednesday’s trading session at 14,897 for a 0.70 percent decline. The S&P 500 (SPY) fell 0.58 percent to close at 1,642.

The Nasdaq 100 (QQQ) declined 0.35 percent to finish at 3,071. The Russell 2000 (IWM) dropped 0.68 percent to end the day at 1,021.

In other major markets, oil (USO) sank 0.93 percent to close at $37.17.

On London’s ICE Futures Europe Exchange, October futures for Brent crude oil declined by 38 cents (0.34 percent) to $109.77/bbl. (BNO).

December gold futures declined by $7.70 (0.56 percent) to $1,364.90 per ounce (GLD).

Transports had transmission trouble during Wednesday’s session, with the Dow Jones Transportation Average (IYT) dropping 0.56 percent.

Tepco’s mess in Fukushima caused Japanese stocks to slump through most of the session, although a late-day rally pulled the Nikkei out of the red and well into positive territory. After strengthening to 97.13 per dollar during Wednesday’s trading session in Tokyo, the yen weakened to 97.66 per dollar, pulling stocks upward. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average advanced 0.21 percent to 13,424 (EWJ).

In China, stocks made a slight advance as oil and coal producers had a good day. The Shanghai Composite Index inched upward by 0.02 percent to close at 2,072 (FXI). On the other hand, Hong Kong’s Hang Seng Index had another bad day, falling 0.69 percent to end the session at 21,817 (EWH). The Hang Seng has been faltering on fears that the government might raise interest rates as consumer prices have been rising.

European stocks fell further into the red on Wednesday as bank stocks fell, dragging the major indices along for the ride (VGK). Banking giant, HSBC saw its share price sink 2.3 percent.

An earnings miss by Heineken sent the stock falling 4 percent. Worse yet, the company offered a bleak outlook for the remainder of the year.

The Euro STOXX 50 Index finished Wednesday’s session with a 0.48 percent decline to 2,774 – while remaining above its 50-day moving average of 2,709. Its Relative Strength Index is 49.00 (FEZ).

Technical indicators revealed that the S&P 500 dropped further below its 50-day moving average of 1,657 after finishing Wednesday’s session with a 0.58 percent decline to 1,642. At this point, bears are watching the formation of a head-and-shoulders pattern on the S&P chart, from the period beginning in early May. (There already is a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16.) Its Relative Strength Index fell from 39.05 to 35.66. The MACD is below the zero line as well as the signal line, suggesting a further decline.

For Wednesday, all sectors were in negative territory. The utilities sector took the hardest hit, falling 1.14 percent.

Consumer Discretionary (XLY): -0.86%

Technology: (XLK): -0.22%

Industrials (XLI): -0.69%

Materials: (XLB): -0.76%

Energy (XLE): -0.55%

Financials: (XLF): -0.70%

Utilities (XLU): -1.14%

Health Care: (XLV): -0.60%

Consumer Staples (XLP): -0.77%

Bottom line: The minutes from the July FOMC meeting sent the stock market on a wild ride during Wednesday’s session, as commentators read between the lines for hints as to whether the Fed will begin to taper its bond-buying in September. By the end of the day, the consensus was that the September taper appeared to be a “go”.

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