The stock market finished with modest gains on Wednesday after the Fed kept rates unchanged and indicated it was more open to lower rates in upcoming meetings. The 0.3% gain in the S&P 500 left the benchmark index less than 1.0% from its record close. The Dow Jones Industrial Average increased 0.2%, the Nasdaq Composite increased 0.4%, and the Russell 2000 increased 0.4%. The FOMC's policy directive came in largely as expected. The fed funds rate was unchanged, the word "patient" was removed, and the directive noted that the Fed will act as appropriate to sustain the economic expansion amid increased uncertainties to the outlook. St. Louis Fed President James Bullard was the lone dissident among voting members, preferring to lower the fed funds rate by 25 basis points.The Fed's updated dot plot showed a divided stance in policy for the remainder of the year. Eight voting members indicated they were in favor of a rate cut in 2019, while eight preferred to keep rates unchanged. One member forecast a rate hike.
Nevertheless, the fed funds futures market now sees a 100% implied likelihood of a rate cut in July. The major averages barely budged from their flat lines prior to the rate decision and wavered with modest gains afterwards. Most S&P 500 sectors finished higher, led by the defensive-oriented health care (+1.0%), utilities (+0.8%), and real estate (+0.7%) sectors. The materials (-0.5%), energy (-0.2%), and financials (-0.2%) sectors underperformed. U.S. Treasury yields fell sharply after the release of the directive and took a leg lower during Fed Chair Powell's follow-up press conference.The fed funds-sensitive 2-yr yield dropped nine basis points to 1.75% after touching 1.90% at its high. The benchmark 10-yr yield declined three basis points to 2.03% after touching 2.10% at its high. The U.S. Dollar Index declined 0.4% to 97.25. WTI crude declined 0.3% to $53.99/bbl. In corporate news, Adobe Systems (NASDAQ:ADBE) (ADBE 291.21, +14.43, +5.2%) reported upbeat earnings results, helping investors overlook its downside Q3 guidance. U.S. Steel (X 15.17, +0.59, +4.1%) lowered its Q2 EPS guidance due to softening end market demand, but shares pushed higher as investors presumably viewed the news as already being priced in. Separately, the weekly MBA Mortgage Applications, which was Wednesday's lone economic report, declined 3.4% following a 26.8% surge in the prior week.
Looking Ahead:
Looking ahead, investors will receive the following reports on Thursday: weekly Initial and Continuing Claims, the Current Account Balance for the first quarter, the Philadelphia Fed Index for June, and the Conference Board's Leading Economic Index for May.
Top Market drivers:
- Stock market finishes modestly higher after Fed rate decision
- Fed funds rate unchanged, "patient" removed from directive, Fed says it will act as appropriate to sustain the economic expansion amid increased uncertainties to the outlook
- Shorter-dated Treasury yields declined noticeably
Strong: Utilities, Health Care, Real Estate
Weak: Materials, Energy, Financials
