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Stocks Tread Water as September Hike Grows More Likely

NEW YORK (TheStreet) -- The Federal Reserve did nothing at its July meeting, but the likelihood that they soon will hung a cloud over trading on Thursday.

Not helping matters was the fact that while second-quarter GDP rebounded from weakness in the first quarter, it wasn't at quite the pace that economists had expected. The return to healthy economic growth gave many the conviction that the Fed will make its first money-tightening move in more than nine years in September. 

Those worries kept investors largely on the sidelines on Thursday with stocks making no big moves. The S&P 500 and the Dow Jones Industrial Average were flat. The Nasdaq gained 0.33%.

GDP in the U.S. climbed 2.3% in the second quarter, slightly weaker than an estimated 2.5% increase, though well above a weak first quarter. GDP for the first quarter was revised to show 0.6% growth instead of 0.2% contraction.

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"The relative strength in consumption data along with an expected cessation of weakness in business spending and improving inflation metrics should keep the Fed on track to raise rates in September," said Dan Greenhaus, chief strategist at BTIG Research, in a note.

Fed members unanimously decided to leave the benchmark fund rate unchanged at the crises-level of 0% to 0.25% in an announcement Wednesday. The Fed offered no clues as to whether it will seriously consider a rate hike at the central bank's next meeting in September. Nonetheless, a rate hike clearly remains a possibility as the central bank reiterated its viewpoint that the U.S. economy and job market continues to improve.

If the Fed raises rates, it "must mean that they're finally comfortable with the underlying strength in the U.S. economy and that monetary policy doesn't need to be as accommodative to essentially serve as a crutch for economic growth," said Phil Orlando, chief equity strategist at Federated Investors, predicting a likely rate hike in September in a phone call. "Ultimately, the market is going to respond well to that because it means that corporate earnings are going to start to reaccelerate as well."

Major oilers such as PetroChina (PTR), ConocoPhillips (COP), and Schlumberger (SLB) were lower Thursday, while the Energy Select Sector SPDR ETF (XLE) fell 0.7%. Energy stocks rallied at the beginning of the week on weekly data that showed crude oil inventories had fallen faster than expected.

Western Digital (WDC - Get Report) led the Nasdaq after beating quarterly earnings estimates even in the face of a continued slump in demand for PCs. The surge in Western Digital's share price was also benefiting competitor Seagate (STX), which will report its earnings before the bell Friday.

Other tech stocks making moves higher included Microsoft (MSFT - Get Report), Qualcomm (QCOM), Baidu (BIDU) and Hewlett-Packard (HPQ). The Technology SPDR ETF (XLK) added 0.2%.

In earnings, Facebook (FB - Get Report) shares dropped more than 2% despite beating profit estimates and edging past revenue forecasts. The social network earned 50 cents a share in the second quarter, 3 cents above estimates, on revenue of $4.04 billion. Sales jumped 39%, driven by a 43% increase in advertising revenue.

T-Mobile (TMUS - Get Report) added 5% after soaring past earnings estimates in its second quarter. Profit of 42 cents a share beat consensus of 24 cents, while revenue of $8.2 billion jumped more than 14%. Forecasts for customer growth were raised as the company continues to spend aggressively to capture market share.

Wynn Resorts (WYNN) shares climbed more than 8% despite a big miss in its recent quarter. The casino owner earned 74 cents a share, 22 cents below estimates, on revenue down 26% to $1.04 billion. The company has faced weak demand in the key gambling region of Macau.

Colgate-Palmolive (CL) was victim to a stronger U.S. dollar in its second quarter, reporting a 6.5% drop in revenue. Stripping away the effects of currency, organic sales climbed nearly 6%.

Likewise, Procter & Gamble (PG) fell more than 3% after reporting a mixed quarter. Earnings of $1 a share beat by a nickel, while revenue fell nearly 10%, hit by a stronger U.S. dollar in its international markets. Organic sales gained 2%.

Whole Foods Market (WFM - Get Report) tumbled 11.6% after missing estimates on its top- and bottom-lines. Growth slowed at the supermarket chain as comparable-store sales increased 2.2% and average basket size rose 1.7%.

Time Warner Cable (TWC) shares on watch after the cable company fell below analysts' consensus in its recent quarter. Profit fell 7.2% as programming costs rose 11%. Total sales increased 3.5% to $5.93 billion on the back of robust subscriber growth.

Weekly jobless claims in the U.S. climbed 12,000 to 267,000 in the week ended July 25, according to the Labor Department. Economists had expected the number of new claims for unemployment benefits to gain at a faster pace to 275,000.

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FB $95.21 0.00%
MSFT $46.88 0.00%
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WFM $36.08 0.00%


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