Sector Investing

[ReturntoSender]

Wall Street Pulls Back after Powell Holds Firm on Policy Stance
01-May-19 16:20 ET
Dow -162.77 at 26430.14, Nasdaq -45.75 at 8049.63, S&P -22.10 at 2923.73

https://www.briefing.com/investor/markets/stock-market-update/2019/5/1/wall-street-pulls-back-after-powell-holds-firm-on-policy-stance.htm

[BRIEFING.COM] The S&P 500 lost 0.8% on Wednesday, pulling back from all-time highs, after Fed Chair Jerome Powell dismissed the idea of a rate-cut to combat low inflation. The Dow Jones Industrial Average (-0.6%), Nasdaq Composite (-0.6%), and Russell 2000 (-0.9%) also succumbed to selling interest.

The stock market traded with modest gains leading up to the release of the Fed's policy directive. Apple (AAPL 210.52, +9.85, +4.9%) provided strong support after it beat top and bottom-line estimates and issued upbeat guidance for its fiscal third quarter. The outperformance in Apple also helped push the S&P 500, and information technology sector (-0.3%), to new intraday highs.

The move to record highs prompted some technically-driven selling, but overall the market held steady despite calls that the market had gotten overextended. The release of the Fed's policy decision briefly sent equities and U.S. Treasuries back to session highs in front of Fed Chair Powell's press conference.

The Federal Open Market Committee left the fed funds rate unchanged at 2.25-2.50%, as was expected. The committee also acknowledged that overall inflation and core inflation have declined and remained below its 2 percent target. Some market participants believed the Fed was setting the precedent for a rate cut should inflation continue to remain persistently below the Fed's target.

Fed Chair Powell, however, downplayed the need to address the muted inflation pressure with a change in policy, including a rate cut, since he thinks the recent deceleration in inflation is being caused by transitory factors. The news provided an excuse to sell a market trading near record highs, sending the S&P 500 into negative territory where selling would pick up into the close.

Ten of the 11 S&P 500 sectors finished lower, led by energy (-2.2%), materials (-1.8%), and consumer staples (-1.2%). The weakness in the energy space was also driven by lower oil prices ($63.59/bbl, -$0.21, -0.3%) following bearish inventory data out of the Energy Information Administration.

The Treasury market reacted visibly to Fed Chair Powell's message that a rate cut should not be expected. The 2-yr yield, which fell to 2.22% before the conference, finished higher by three basis points to 2.30%. The 10-yr yield, which fell to 2.46% before the conference, returned to its unchanged mark at 2.51%.

Reviewing Wednesday's economic data, which included the ISM Manufacturing Index for April, the ADP Employment Change report for April, Construction Spending for March, and the weekly MBA Mortgage Applications Index:

The ISM Manufacturing Index for April fell to 52.8% (Briefing.com consensus 55.0%) from 55.3% in March. The April reading is the lowest since October 2016. The dividing line between expansion and contraction is 50.0%.
The key takeaway from the report is that it shows there was a notable deceleration in manufacturing activity to begin the second quarter, which is a data point that will contribute to the Fed's patient mindset.
The ADP Employment Report showed an increase of 275,000 in April (Briefing.com consensus 170,000), and the March reading was revised to 151,000 (from 129,000).
Total construction spending declined 0.9% in March (Briefing.com consensus +0.1%) on the heels of a downwardly revised 0.7% increase (from 1.0%) in February.
The key takeaway from the report is the understanding that private residential construction spending is weak due to a downturn in new single family construction.
The weekly MBA Mortgage Applications Index decreased 4.3% following a 7.3% decline in the prior week.

Looking ahead, investors will receive the weekly Initial and Continuing Claims report, preliminary first quarter readings for Nonfarm Productivity and Unit Labor Costs, and Factory Orders for March on Thursday.

Nasdaq Composite +21.3% YTD
Russell 2000 +16.9% YTD
S&P 500 +16.6% YTD
Dow Jones Industrial Average +13.3% YTD