Stocks were mixed with risk sentiment sour as investors piled into shares of big tech companies Wednesday. This was after the Federal Reserve said it will maintain its benchmark lending rate, but also offered slightly negative commentary.
The S&P 500 fell 0.53%, while the tech-heavy Nasdaq rose 0.67%. The safe 10-Year Treasury bond saw its yield drop to 0.73% from 0.82%. Yields fall when prices rise.
The Federal Reserve said in a statement that it will maintain its target federal funds rate of between 0% and 0.25% for the foreseeable future and added that the outlook for economic growth and inflation is shaky for the medium term. Meanwhile, stocks had more than priced in low rates and the S&P 500 is roughly just 5.5% below its all-time-high, suggesting the market is pricing in a near-perfect recovery.
Cyclical sectors performed badly.
The S&P 500 Equal-Weight Consumer Discretionary Index fell more than 3.25%. The Invesco KBW Bank ETF (KBWB) fell 5.9% as the yield curve also continued to compress. The Energy Select Sector SPDR ETF (XLE) dropped almost 5%.
The Vanguard S&P 500 Value ETF (VOOV) , home to many cyclical stocks, fell more than 1.83% and is down 3.5% this week.
Investors clamored for shares of big tech companies, which have secular growth drivers that can often largely elude the negative impact of economic pain. The NYSE FANG Index rose almost 2%. Apple (AAPL) rose 2.5% and hit a new all-time intraday of $254, as its booming services business catches a stay-at-home tailwind and its hardware business in China rebounds.
Here’s what Wall Street’s saying:
James McCann, Senior Global Economist, Aberdeen Standard Investment:
"The Fed is clearly signaling that we are not by any means out of the woods yet. The jobs report was probably as much of a positive surprise to them as the rest of the market. But it doesn’t change the fact that a recovery is going to take years, not months. Powell is trying to send a strong signal here today that the Fed is going to keep policy very loose for a long time."
Mike Loewengart, Head, Investment Strategy, E*Trade:
"Seeing blanket agreement across all Fed officials is not common but they are remaining a united front in the current environment. While negative interest rates may be the route of other central banks across the globe, it’s one the US has decidedly steered away from—and today’s decision to stand pat reaffirms this stance. What is surprising is that on the heels of some v-shape recovery indicators, the Fed sees structural fragility in the US economy—anticipating zero interest rates into 2022. Powell has made it clear that he will continue to rely on his full range of tools to keep the US economy healthy as jobs and inflation continue to come under historic pressure. The Fed’s cautious tone suggests that we’re not out of the woods yet and they will likely take whatever means necessary to keep key metrics afloat.”
Charlie Ripley, Senior Investment Strategist, Allianz Investment Management:
"Heading into the Fed meeting, most market participants weren’t looking for much in terms of policy action, but rather the focus was on the qualitative aspect of the meeting and the commentary surrounding it. Recent meetings have offered a pessimistic stance from the Fed as the emphasis has been geared towards the downside risks to the economy."
Tony Dwyer, Chief Market Strategist, Canaccord Genuity:
"History suggests consolidation period over coming weeks/months before next leg higher. The percentage of the S&P 500 (SPX) components trading above their respective 50-day moving averages hit 97.8% yesterday – a rarely seen level. We looked at prior occurrences of such short and intermediate-term strength two different ways to gauge the implications and found that it was a terrific long-term signal but only after a period of consolidation.”
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