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Stock market falls after Powell shoots down easing cycle hopes
31-Jul-19 16:25 ET
Dow -333.75 at 26864.27, Nasdaq -98.19 at 8175.43, S&P -32.80 at 2980.38

https://www.briefing.com/investor/markets/stock-market-update/2019/7/31/stock-market-falls-after-powell-shoots-down-easing-cycle-hopes.htm

[BRIEFING.COM] The S&P 500 fell as much as 1.8% on Wednesday after Fed Chair Powell indicated that the July rate cut was not the start of an easing cycle. Stocks did rally off lows, though, after Mr. Powell quickly suggested that policy could still accommodate another cut if necessary. The S&P 500 finished lower by 1.1%.

The Dow Jones Industrial Average (-1.2%) and Nasdaq Composite (-1.2%) posted comparable losses to the benchmark index, while the Russell 2000 (-0.7%) fared slightly better.

Prior to the Fed's decision to cut the target range for the fed funds rate by 25 basis points to 2.00% to 2.25%, there wasn't much conviction from buyers or sellers in the market. The major indices traded marginally higher, mainly supported by the positive price action in Apple (AAPL 213.04, +4.26, +2.0%) following its results and guidance.

In its policy directive, the Fed cited economic uncertainties and inflation levels that were running below its target for its rate decision. Two voting members, however, did dissent to the rate cut, preferring to keep rates unchanged. Separately, the Fed also noted that it will end its balance sheet reduction efforts in August, two months earlier than previously indicated.

The directive stirred some volatility in the market, but Fed Chair Powell's ensuing press conference then caused the real volatility after he used phrases like "insurance" and "mid-cycle adjustment" to describe the Fed's first rate cut since 2008. Stocks fell sharply before the Fed Chair abated selling pressure by saying that his description didn't mean "just one rate cut."

Mr. Powell's clarification wasn't enough to completely ease investors, though. All 11 S&P 500 sectors finished lower, including noticeable declines in the consumer staples (-2.0%), materials (-1.5%), and information technology (-1.5%) sectors. The Philadelphia Semiconductor Index dropped 3.5%.

The weakness in the semiconductor space was mostly attributed to Advanced Micro Devices (AMD 30.45, -3.42, -10.1%) cutting its full-year revenue outlook. The group, like the broader market, did extend losses during Fed Chair Powell's press conference.

U.S. Treasuries also experienced noticeable movements, ultimately flattening the yield curve by session's end. The 2-yr yield, which touched 1.80% prior to the press conference, finished three basis points higher to 1.88%. The 10-yr yield finished near its lows, declining four basis points to 2.02%. The U.S. Dollar Index rose 0.6% to 98.62. WTI crude increased 0.6% to $58.38/bbl.

Reviewing Wednesday's economic data, which included the ADP Employment Change report for July, the Chicago PMI for July, the Employment Cost Index for the second quarter, and the weekly MBA Mortgage Applications Index:

The ADP Employment Change report showed an estimated 156,000 positions were added to private-sector payrolls in July (Briefing.com consensus 150,000).
The Q2 Employment Cost Index increased 0.6% (Briefing.com consensus 0.6%), seasonally adjusted, for the three-month period ending in June 2019 after increasing 0.7% for the three-month period ending in March 2019. Wages and salaries, which account for about 70% of compensation costs, rose 0.7%, while benefit costs, which make up the remainder of compensation costs, increased 0.5%.
The key takeaway from the report is that there has been some moderation in the growth rate of employment costs for civilian workers.
The July Chicago PMI came in at 44.4 (Briefing.com consensus 50.5), slipping further into contraction territory after coming in at 49.7 in June. A reading below 50.0 denotes a contraction.
The weekly MBA Mortgage Applications Index declined 1.4% following a 1.9% decline in the prior week.

Looking ahead, investors will receive the ISM Manufacturing Index for July, Construction Spending for June, and the weekly Initial and Continuing Claims report on Thursday.

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