Fed Holds Steady, but Myriad Variables Pressure Sentiment…..
U.S. equities finished sharply lower amid a host of variables for investors to chew on. The Federal Reserve opted to keep its monetary policy intact, as well as its asset purchase program, while noting that while the economic recovery from the pandemic continues, it has moderated over recent months. As well, the markets appeared to grapple with the recent surge in valuations that have been exacerbated by ramped-up retail trading speculation, while earnings season kicked into high gear, COVID-19 case and variant uneasiness persisted, uncertainty remained regarding the changed political landscape, and economic data has painted a mixed picture. On the earnings front, Dow member Microsoft posted strong Q2 results crediting its cloud business, while Dow member Boeing reported a much larger-than-expected loss, Starbucks missed revenue forecasts, and Advanced Micro Devices’ strong results failed to extend the stock’s rally. In economic news, December durable goods orders missed at the headline level, but the core measures were above estimates, and mortgage applications fell for a second-straight week. Treasuries ticked higher, applying downside pressure on yields and the U.S. dollar bounced off recent lows, while crude oil prices were higher and gold was lower. Europe finished with broad-based losses, while markets in Asia were mixed.
The Dow Jones Industrial Average tumbled 634 points (2.1%) to 30,303, the S&P 500 Index was down 99 points (2.6%) at 3,751, and the Nasdaq Composite plunged 355 points (2.6%) to 13,271. In very heavy volume, 1.7 billion shares were traded on the NYSE and 10.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.24 to $52.85 per barrel. Elsewhere, the Bloomberg gold spot price was $8.16 lower at $1,842.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—moved 0.5% to the upside to 90.64.
Fed stands pat, durable goods orders mixed, mortgage applications decline…..
The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting today, opting to leave its stance and interest rates unchanged, as was widely anticipated. In its statement, the Committee said that while the recovery from the disruption of the COVID-19 pandemic is continuing it, as well as employment, have moderated in the recent months “with weakness concentrated in the sectors most adversely affected by the pandemic.” As well, the FOMC indicated that the ongoing public health crisis will continue to pose risks to the economy, inflation and its outlook, and that accommodative policy will remain in place until inflation reaches or exceeds its 2% target and the unemployment rate falls to a level deemed sustainable without leading to higher inflation. The Federal Reserve said it will maintain its bond buying program at the current rate of $80 billion in Treasuries and $40 billion in mortgage-backed securities per month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
December preliminary durable goods orders rose 0.2% month-over-month (m/m), versus the Bloomberg consensus estimate of a 1.0% rise and compared to November’s upwardly revised 1.2% increase. Ex-transportation, orders grew 0.7% m/m, above forecasts of a 0.5% gain and compared to November’s favorably adjusted 0.8% rise. Moreover, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were up 0.6%, compared to projections of a 0.5% rise, while the prior month’s figure was revised upward to a 1.0% increase.
The headline figure was bogged down by a sharp drop in nondefense aircraft and parts orders, along with a decline in defense aircraft and parts. However, demand for motor vehicles, machinery and fabricated metal products rose solidly to more than offset a decline in orders for computers and related products.
The MBA Mortgage Application Index decreased by 4.1% last week, following the prior week’s 1.9% decrease. The drawdown came as the Refinance Index fell 5.0% and the Purchase Index dropped 4.0%. The average 30-year mortgage rate increased 3 basis points (bps) to 2.95%.
Treasuries were higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were 1 bp lower at 0.11%, 1.01% and 1.78%, respectively.
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