Summary

Wall Street ended slightly lower on Wednesday after the Fed held interest rates unchanged and investors digested another heavy round of earnings reports.

The benchmark S&P 500 reduced its losses following the Fed’s statement, which downplayed weak first-quarter economic growth and emphasized the strength of the labor market, in a sign it could tighten monetary policy as early as June.

The S&P 500 has climbed 11.6 percent since President Donald Trump’s Nov. 8 election, fueled by hopes for tax cuts, deregulation and infrastructure spending, although investors have questioned his ability to enact his agenda.

The Street is betting that there is a 65 percent chance of a hike in June, according to Thomson Reuters data. Meanwhile, The S&P 500 has returned to within 8 points of its all-time high during an earnings season that generally come in above expectations.

The S&P financial sector, seen benefiting in a rising rate environment, ended up 0.6 percent after the Fed’s bullish statement, leading all groups. However, seven of the 11 major sectors finished in negative territory.

First-quarter earnings at S&P 500 companies are estimated to have increased 14.2 percent, making it the strongest growth spurt since 2011, according to Thomson Reuters I/B/E/S.

Apple fell 0.3 percent, weighing on indexes, but recovering from steeper losses after the company’s quarterly report, in which it reported a surprise fall in iPhone sales.

In other corporate news, Sprint slid 14.3 percent after the U.S. wireless carrier did not give specifics on deals it would pursue, even as its quarterly loss narrowed.

Delphi Automotive (DLPH.N) shares jumped 10.9 percent. The company said it planned to spin off operations tied to internal combustion engines and focus on technology for electrically powered and self-driving vehicles. The stock was the biggest percentage gainer in the S&P 500.

The New York Times rose 12.6 percent after the newspaper publisher reported its largest quarterly revenue growth in six years.

After the regular close of trading, Facebook fell more than 1 percent even as the social media company reported a 76.6 percent surge in quarterly earnings.

Approximately 7.3 billion shares changed hands on the major domestic equity exchanges, a number that was above the 6.6 billion share daily average over the past 20 sessions.

Rates Unchanged

The Federal Reserve kept interest rates unchanged on Wednesday and downplayed weak first-quarter economic growth while emphasizing the strength of the labor market, in a sign it was still on track for two more rate rises this year.

In a bullish statement following the end of a two-day policy meeting, the Fed also said consumer spending continued to be solid, business investment had firmed and inflation has been “running close” to the Fed’s target.

“The committee views the slowing in growth during the first quarter as likely to be transitory,” the Fed said in a unanimous statement. The labor market continued to strengthen even as growth in economic activity slowed and “the fundamentals underpinning the continued growth of consumption remained solid.”

The affirmation from the Fed that it was optimistic on economic growth and that its rate rise plans remained intact bolstered the dollar against the euro and yen and pushed Treasury yields slightly higher.

While the Fed is encouraged by recent economic data indicating a sharp increase in business investment, the fastest wage growth in a decade and an unemployment rate that is near a 10-year low, some Fed officials had also said they wanted more data in hand before taking additional steps to normalize rates.

Gross domestic product grew at a sluggish 0.7 percent annual pace in the first quarter as consumer spending almost stalled. Job growth also slowed sharply in March. The weak economic growth is largely attributed the pullback in hiring to weather.

The Fed is awaiting clarity on the size and scope of the tax cuts, infrastructure spending and regulatory changes that the Trump administration will be able to push through Congress. A stimulus package could speed up the pace of rate hikes.

Inflation had been edging higher, but the so-called core PCE price index increased 1.6 percent in the 12 months through March, the smallest gain since last July. Core PCE is the Fed’s preferred inflation measure and is below its target.

The Fed in its statement showed little concern about a softening in inflation, characterizing it as “running close to the committee’s 2 percent longer-run objective.”

The rate-setting committee is also gearing up to announce sometime this year when and how the Fed will begin shrinking its $4.5 trillion balance sheet. Wednesday’s statement offered no new details.

The Street is expecting that the Fed’s policy-setting committee will likely increase the Fed funds rate by a quarter point at its next meeting on June 13-14.

Hiring Slows

Companies hired workers at a slower but still-solid pace in April while the services sector grew more than expected, supporting the notion the economic expansion remains on track despite a weak first quarter, ADP said on Wednesday.

Payrolls processor ADP said on Wednesday private employers added 177,000 jobs last month. It was the smallest gain since the 62,000 jobs added last October.

Private payroll gains for March were revised down to 255,000 from an originally reported 263,000 increase. ADP, which jointly developed its employment report with Moody’s Analytics, said private employers face increasing difficulty finding qualified workers in a tightening labor market.

The ADP figures come ahead of the Labor Department’s more comprehensive non-farm payrolls report at 8:30 a.m. on Friday.

In other economic news, the Institute for Supply Management (ISM) said on Wednesday its index of non-manufacturing activity rose to 57.5 in April from March’s 55.2, which was above analysts’ expectations of 55.8. A reading above 50 indicates expansion in the services sector, which accounts for nearly 80 percent of the U.S. economy.

The business activity index rose to 62.4 from 58.9 the month before. That was above a median forecast of 58.4. The survey’s new orders index climbed to 63.2, the strongest since August 2005, from 58.9 in March. However, the employment index fell to 51.4, its lowest since August, from March’s 51.6.

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