Target and Lowe's lift Wall Street, FOMC minutes flatten yield curve
21-Aug-19 16:20 ET
Dow +240.29 at 26202.71, Nasdaq +71.65 at 8020.23, S&P +23.92 at 2924.43
[BRIEFING.COM] The S&P 500 increased 0.8% on Wednesday in a broad-based advance. Upbeat results and reassuring guidance from Target (TGT 103.00, +17.47, +20.4%) and Lowe's (LOW 108.00, +10.13, +10.4%) reinforced the notion that the U.S. consumer remains in good shape, while investors parsed the FOMC minutes from the July meeting.
The Dow Jones Industrial Average increased 0.9%, the Nasdaq Composite increased 0.9%, and the Russell 2000 increased 0.8%.
Wednesday's positive disposition formed overnight as futures steadily increased alongside a modest uptick in U.S. Treasury yields. Outsized gains in Target and Lowe's following their earnings reports helped solidify the market's positive posture throughout the day.
All 11 S&P 500 sectors finished in positive territory, with the consumer discretionary (+1.8%) and information technology (+1.2%) sectors gaining over 1.0%. The consumer staples (+0.3%) and communication services (+0.4%) sectors rose modestly.
Price action was relatively muted leading up to the release of the FOMC Minutes, which had a noticeable effect on the U.S. Treasury market. The minutes indicated different viewpoints on where the fed funds rate should be (some called for a 50-basis points rate cut, while others favored no change). In addition, it was said in the minutes that the Fed will remain "flexible" and focused on the implications of incoming data for the outlook.
The minutes produced some knee-jerk selling on the shorter-end of the yield curve, causing some curve-flattening activity that garnered some negative-minded attention. The 2-yr yield increased six basis points to 1.57%, and the 10-yr yield increased two basis points to 1.58%. At one point before the close, the 2s10s spread briefly inverted again. The U.S. Dollar Index increased 0.1% to 98.29. WTI crude declined 0.9%, or $0.53, to $55.65/bbl.
It should be noted that the Fed meeting preceded a tariff announcement from President Trump, a brief 2s-10s spread inversion, and weakening global data. The minutes may be considered even more dated once Fed Chair Powell speaks on Friday during the Fed's Jackson Hole symposium.
Separately, shares of Cree Inc. (CREE 49.01, -9.23) fell 15.9% after the semiconductor company disappointed investors with its guidance.
Reviewing Wednesday's economic data, which included Existing Home Sales for July and the weekly MBA Mortgage Applications Index:
Existing home sales increased 2.5% month-over-month in July to a seasonally-adjusted annual rate of 5.42 million (Briefing.com consensus 5.40 million) from an upwardly revised 5.29 million (from 5.27 million) in June. Total sales were 0.6% higher than the same period a year ago.
The key takeaway from the report is that the inventory of existing homes for sale remains tight. That will continue to support high prices, which in turn makes the persistence of low mortgage rates extremely important as a driver of existing home sales activity.
The weekly MBA Mortgage Applications Index declined 0.9% following a 21.7% spike in the prior week.
Looking ahead, investors will receive the weekly Initial and Continuing Claims report and the Conference Board's Leading Economic Index for July on Thursday.
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