Wall Street closed mixed on Wednesday after the Federal Reserve reiterated its stance that zero or near-zero interest rate regime will prevail at least up to 2023. However, the technology sector selloff continued on concerns of overvaluation. The Dow ended in the green while both the S&P 500 and the Nasdaq Composite finished in red.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) gained 0.1% to close at 28,032.38, marking its fourth positive session in a row for the first time since Aug 10. Notably, 14 components of the 30-stock index ended in the green while 16 finished in red. The blue-chip index is 1.8% below to become green year to date.
The S&P 500 declined 0.5% to end at 3,385.49, reversing its thiree-day winning streak. The Energy Select Sector SPDR (XLE) soared 4% while the Technology Select Sector SPDR (XLK) tanked 1.6%. Notably, six out of the eleven sectors of the benchmark index closed in negative territory and five in positive zone.
Meanwhile, the tech-laden Nasdaq Composite finished at 11,050.47, dropping 1.3% due to the poor showing by technology behemoths, terminating its two-day winning run.
Shares of technology behemoths such as Apple Inc. (AAPL - Free Report) , Amazon.com Inc. (AMZN - Free Report) , Netflix Inc. (NFLX - Free Report) , Microsoft Corp. (MSFT - Free Report) and Alphabet Inc. (GOOGL - Free Report) declined 3%, 2.5%, 2.5%, 1.8% and 1.5%, respectively. Apple carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The fear-gauge CBOE Volatility Index (VIX) was up 1.8% to 26.04. A total of 9.80 billion shares were traded on Wednesday, higher than the last 20-session average of 9.41 billion. Advancers outnumbered decliners on the NYSE by a 1.68-to-1 ratio. On Nasdaq, a 1.46-to-1 ratio favored advancing issues.
Fed's FOMC Meeting
In his lecture about the Fed's policy statement after the conclusion of 2-day FOMC meeting, Fed Chairman Jerome Powell reiterated that the benchmark interest rate will stay zero or near-zero at least up to 2023. The central bank will pursue its ultra-dovish monetary stance until the labor market returns to the “maximum employment” level and the inflation reached the Fed's target rate of 2% or moderately exceed 2% for some time.
The Fed will also pursue its existing $120 billion monthly purchase of assets in the form of U.S. Treasury and mortgage bonds until the economy returns to normalcy or pre-pandemic level. Powell warned that the coronavirus-induced economic downturn is “the most severe in our lifetime” and some important segments of the economy will suffer significantly without further fiscal stimulus.
Notably, on Aug 27, Fed Chairman Jerome Powell announced that the newly adopted "average inflation targeting" policy will allow inflation and employment to run higher together for some time in order to support the pandemic-ravaged economy.
The Fed's target of 2% inflation will remain unchanged. However, under the new policy, the inflation rate will remain higher than 2% along with increased employment for some time. This inherently means that the benchmark interest rate, which is currently low in the 0 - 0.25% range, will remain at that level for a longer period than expected.
Moreover, Powell has changed the Fed's approach toward employment. Under the new approach, the jobs situation will be described by the Fed’s “assessments of the shortfalls of employment from its maximum level” rather than “deviations from the maximum level'' followed earlier.
The Department of Commerce reported that retail sales in August increased by 0.6% compared with the consensus estimate of 1.1%. July's retail sales data was revised downward from an increase of 1.2% to 0.9%.
Core retail sales (excluding the volatile items like automobiles, gasoline, building materials and food services) increased by 0.7% in August compared with the consensus estimate of 1.2%. July's core retail sales data was revised downward from an increase of 1.9% to 1.3%. Notably, core retail sales correspond most closely with the consumer spending part of the GDP.
The NAHB/Wells Fargo Housing Market Index (HMI) rose five points to an all-time high of 83 in September. Any reading above 50 indicates favorable condition for home builders.
The Organization for Economic Cooperation and Development (OECD) estimated that the global economy will decline by 4.5% in 2020. This was an improvement of the agency's previous estimate of a decline of 6% this year. The U.S. economy is expected to decline by 3.8% in 2020.
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