Benchmarks ended in the red for the fifth consecutive session on Wednesday after the Fed opted to keep interest rate unchanged and raised concerns about number of hikes this year. Meanwhile, concerns over “Brexit” and decline in crude prices continued to weigh on investor sentiment. While the Dow and S&P 500 witnessed a five-day losing streak for the first time since early February while the Nasdaq registered identical losses for the first time since early April.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) decreased 0.2% to close at 17,640.17. The S&P 500 also fell 0.2% to close at 2,071.50. The tech-laden Nasdaq Composite Index closed at 4,834.93, also losing 0.2%. However, the fear-gauge CBOE Volatility Index (VIX) declined 1.8% to settle at 20.14. A total of around 6.8 billion shares were traded on Wednesday, nearly in line with the last 20-session average. Advancers outpaced declining stocks on the NYSE. For 59% stocks that advanced, 38% declined.
After concluding its two-day policy meeting yesterday, the Federal Open Market Committee (FOMC) decided to keep federal funds rate unchanged between 0.25% and 0.5% following concerns regarding weak jobs data. The FOMC stated: “The pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished.” Also the Fed chairwoman Janet Yellen said that “Brexit” is likely to have "consequences for economic and financial conditions in global financial markets."
Meanwhile, the Fed’s decision to stick with its 2016 rate path also appears to be on shaky ground with just six of the 17 policymakers forecasting one rate hike this year, compared to only one Fed official take a similar view in March. Yellen said: "I'm not comfortable to say it's in the next meeting or two, but it could be…It's not impossible that by July, for example, we would see data that led us to believe that we are in a perfectly fine course."
Moreover, the central bank expects the key inflation rate to remain “low in the near term." Also, the fed funds rate is now expected to be 3% in the long run, compared to earlier projection of 3.3%. Moreover, the Fed forecasted the economy would grow at 2% this year, declining from March’s anticipation of 2.2% rise. The expected GDP growth rate for next year was also revised down from 2.1% to 2%.
Separately, concerns regarding “Brexit” continue to drag major benchmarks lower. Most of the recently released polls revealed that Britain may opt for “Brexit” in June 23’s referendum. These concerns dragged down the U.S. 10-year Treasury yield to its lowest level of 1.59% in over three years. Unchanged rate decision also led the U.S. dollar to weaken against major currencies. The ICE U.S. Dollar Index (DXY) declined 0.4% to 94.59.
The Health Care Select Sector SPDR (XLV), which declined 0.7%, emerged as the biggest decliner among the S&P 500 sectors. Key stocks from the sector including, Allergan plc (AGN - Free Report) , Medtronic plc (MDT - Free Report) , Alexion Pharmaceuticals, Inc. (ALXN - Free Report) , Biogen Inc. ( (BIIB - Free Report) and Bristol-Myers Squibb Company (BMY - Free Report) fell 2%, 1.5%, 1.3%, 1.2% and 0.7%, respectively.
Additionally, oil prices declined as concerns over weak demand offset fall in crude inventories. The EIA reported that U.S. crude inventories declined by 0.9 million barrels to 531.5 million barrels for the week ending June 10, compared to previous week’s decline 3.2 million barrels. While the Energy Select Sector SPDR (XLE) declined more than 0.2%, two Dow components from the sector – Chevron Corporation ( (CVX - Free Report) and Exxon Mobil Corporation (XOM - Free Report) – also decreased 0.6% and 0.3%, respectively.
In economic news, industrial production declined 0.4% in May, wider than the consensus estimate of a 0.2% decrease. This also compares unfavorably compared to April’s rise of 0.6%. Also, capacity utilization decreased from April’s 75.3 to 74.9 in May, lower than the consensus estimate of 75.2.
However, the U.S. Bureau of Labor Statistics reported that the Producer Price Index (PPI) rose 0.4% in May, higher than the consensus estimate of 0.3% rise and April’s rise of 0.2%. Meanwhile, core-PPI that excludes prices of foods, energy, and trade services declined 0.1% last month, compared to 0.3% rise in April.
Separately, the NY Empire State Index – an indicator of economic conditions in New York – came in at 6.1 in June, in contrast to last month’s reading of negative 9.02.