Benchmarks ended Wednesday’s choppy trading session little changed after the Federal Reserve offered a mixed view on the economy. The Fed trimmed the bond buyback plan yet again and will take “considerable time” after that to raise the federal funds rate. The Dow ended in negative territory, while S&P 500 and Nasdaq managed minute gains. Positive second-quarter GDP had lifted markets in the initial hours. Private-sector employment report also turned out to be encouraging.
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The Dow Jones Industrial Average (DJI) dropped 0.2% to close Wednesday’s trading session at 16,880.36. The Standard & Poor 500 (S&P 500) advanced a meager 0.01% to finish at 1,970.07. The tech-laden Nasdaq Composite Index closed at 4,462.90; gaining almost 0.5%. The fear-gauge CBOE Volatility Index (VIX) went up 0.4% to settle at 13.33. Total volume for the day was roughly 6.2 billion shares, higher than this month’s average of 5.6 billion. Decliners outpaced advancing stocks on the NYSE. For 59% stocks that declined, 37% advanced.
The Federal Open Market Committee (FOMC) in its two-day policy meeting gave no hints about the timing of an increase in the federal funds rate. The Federal Reserve said the rate hike may take “considerable time” after the end of its bond buying program. Meanwhile, the FOMC stuck to its plan of steadily wrapping up the quantitative easing program by announcing another $10 billion cut to the bond-buying program. The monthly purchases of Treasury and mortgage-related assets now stand at $25 billion.
Further, the central bank commented that “the likelihood of inflation running persistently below 2% has diminished somewhat” and inflation “has moved somewhat closer to the Fed’s longer-run objective”.
FOMC indicated that the economy has shown significant improvement in the second quarter as most of the economic indicators such as GDP, unemployment rate and inflation rate, were on track. However, it also said the labor market is facing problems of underutilization and the pace of recovery of the housing sector is slow.
Economic data was largely encouraging on Wednesday. The U.S. economy rebounded in the second quarter with GDP growth coming in stronger than expected. According to the “advance” estimate by the Bureau of Economic Analysis, the second quarter output of goods and services produced by labor and property located in the United States increased at an annual rate of 4.0%, more than the consensus estimate of an increase by 3.2%.
Second quarter GDP gained momentum, fuelled by improved consumer spending. Real personal consumption expenditure accelerated in spring by 2.5% following a 1.2% increase in the first quarter.
In addition to this, growth was boosted by a pickup in construction spending, increased business spending on equipment, a bigger buildup in inventories and slightly higher government spending.
This rise in second quarter GDP was in sharp contrast to first quarters’ decline in real GDP by 2.1%. First quarter GDP was revised from an earlier estimate of a decline by 2.9%. The US economy had contracted in the first quarter for the first time in three years. Harsh winter weather was cited for hampering business operations and slowing down construction.
Separately, the national employment report from Automatic Data Processing, Inc. showed private sector hiring dropped in July to 218,000 from June’s figure of 281,000. However, private sector hiring numbers remained above the key figure of 200,000 for the fourth straight month.
Hiring was also broad-based, with small businesses adding 84,000 private-sector jobs, medium businesses adding 92,000 and large businesses adding 41,000.
The ADP report on private-sector hiring came ahead of the U.S. Bureau of Labor Statistics’ nonfarm payroll data for July, scheduled to be released on Friday. Analysts are expecting an addition of 230,000 nonfarm payroll jobs.
Bio-tech stocks helped the Nasdaq end in the green once again. Shares of Amgen Inc. surged 5.4% after the company posted second quarter 2014 earnings of $2.37 per share, well above the Zacks Consensus Estimate of $1.99. Including one-time items, second quarter earnings increased 22% to $2.01 per share. Moreover, Amgen increased its 2014 revenue guidance to the range of $8.20 - $8.40 per share from previous projection of $7.90 - $8.20 per share. The company plans to cut its headcount by 12-15% and shut down facilities in two states.
Other bio-tech stocks such as Gilead Sciences Inc. , Biogen Idec Inc. , Regeneron Pharmaceuticals, Inc. and Celgene Corporation increased 0.9%, 0.8%, 5.8% and 0.7%, respectively.
Shares of Humana Inc. , WellPoint Inc. and AFLAC Inc. decreased 5.6%, 0.1% and 2.8%, respectively after their earnings failed to cheer investors.
Shares of Twitter, Inc. soared 20% after posting second quarter revenues of $312.2 million, increasing 124.1% year-over-year. Revenues surpassed the Zacks Consensus Estimate of $280.0 million.
The Consumer Discretionary Select Sector SPDR (XLY) led the advance among the S&P 500’s sectors, gaining almost 0.6%. Top three holdings from the consumer discretionary sector such as Comcast Corporation , The Walt Disney Company and Amazon.com Inc. (AMZN) increased 0.8%, 1.2% and 0.8%, respectively.
Five out of 10 sectors of the S&P 500 ended in the red. The Utilities Select Sector SPDR (XLU) declined 1.7%, the highest among the S&P 500 sectors. Top holdings from the Utilities sector such as Duke Energy Corporation (DUK), Dominion Resources, Inc. (D), NextEra Energy, Inc. (NEE), Southern Company (SO) and Exelon Corporation (EXC) decreased 1.3%, 1.4%, 2.1%, 1.1% and 1.5%, respectively.