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Mega-caps weigh down market, Fed stays accommodative
16-Sep-20 16:25 ET
Dow +36.78 at 28022.38, Nasdaq -139.85 at 11050.48, S&P -15.71 at 3385.49

https://www.briefing.com/stock-market-update

[BRIEFING.COM] The S&P 500 declined 0.5% on Wednesday due to weakness in the mega-cap stocks, while the Fed signaled rates will remain near zero through 2023 as inflation is expected to remain muted. The Nasdaq Composite fell 1.3%, while the Dow Jones Industrial Average (+0.1%) and Russell 2000 (+0.9%) finished higher.

The Fed left the fed funds rate unchanged, and the policy statement noted they'll remain there until the economy achieves maximum employment and an average 2.0% inflation rate is reached for some time. Note, two FOMC members preferred slightly different stances on how inflation guidance should be communicated. The central bank also raised its GDP forecast for 2020 but lowered its projections for 2021 and 2022.

The S&P 500 rose to session highs (+0.8%) following the statement, but then turned negative during Fed Chair Powell's press conference. Some criticized the Fed chair for not clearly explaining his thinking on future monetary policy, but one shouldn't attribute the intraday weakness to Mr. Powell.

Mega-cap stocks were weak all day, and their weakness was manifested in the declines in the S&P 500 information technology (-1.6%), communication services (-1.2%), and consumer discretionary (-1.0%) sectors. The cyclical energy (+4.1%), financials (+1.1%), and industrials (+1.0%) sectors had strong outings.

Shares of Facebook (FB 263.52, -8.90, -3.3%) fell 3% amid reports that the FTC is preparing a possible antitrust suit against the company. Adobe (ADBE 476.00, -21.67, -4.4%) fell 4% despite beating top and bottom-line quarterly estimates.

In other corporate news, FedEx (FDX 250.30, +13.63, +5.8%) provided better-than-expected earnings results, Snowflake (SNOW 253.93, +133.93, +111.6%) surged 100% in the largest software IPO in history, and General Electric (GE 6.75, +0.65, +10.7%) predicted it will be cash-flow positive in the second-half of this year.

Separately, White House Chief of Staff Meadows, who is a lead negotiator in the coronavirus relief talks, sounded uncharacteristically optimistic in a CNBC interview regarding the prospects for another round of fiscal stimulus. President Trump tweeted that Republicans should "go for the much higher numbers" on stimulus.

U.S. Treasuries gave up their modest gains following the release of the FOMC policy statement. The 2-yr yield increased one basis point to 0.14%, and the 10-yr yield increased one basis point to 0.69%. The U.S. Dollar Index increased 0.1% to 93.17. WTI crude futures rose 4.9%, or $1.87, to $40.17/bbl.

Reviewing Wednesday's economic data:

Total sales were up 0.6% m/m in August (Briefing.com consensus 1.0%), following a downwardly revised 0.9% increase (from 1.2%) in July, and were up 2.6% yr/yr. Excluding autos, sales were up 0.7% (Briefing.com consensus 1.0%), following a downwardly revised 1.3% increase (from 1.9%) in July, and were up 2.1% yr/yr.
The key takeaway from the report is that it points to some slowing in retail spending activity following the expiration of enhanced unemployment benefits, but, importantly, it didn't reveal a spending contraction as increases were seen in many categories.
The NAHB Housing Market Index increased to a new all-time high of 83 in September (Briefing.com consensus 78) following the previous all-time high of 78 in August.
Business inventories increased 0.1% in July following a 1.1% decline in June.

Looking ahead, investors will receive weekly Initial and Continuing claims, Housing Starts and Building Permits for August, and the Philadelphia Fed Index for September on Thursday.

Nasdaq Composite +23.2% YTD
S&P 500 +4.8% YTD
Dow Jones Industrial Average -1.8% YTD
Russell 2000 -7.0% YTD