Stocks Diverge Amid Host of Earnings and Following Fed Decision…..

U.S. stocks finished mixed on the heels of the highly-anticipated monetary policy decision from the Fed. The Central Bank held its policy stance unchanged as expected and signaled further discussions regarding the time frame for tapering its monthly asset purchases. After rallying into the busiest week of Q2 earnings season, the markets showed mixed reactions to a fully-loaded calendar. Results from Dow member Boeing and Google parent Alphabet lifted their shares, while Dow members Apple, McDonald’s and Microsoft, as well as Starbucks, saw lackluster action on the heels of their reports. In economic news, mortgage applications rebounded, the trade deficit unexpectedly widened, and wholesale inventories rose at a smaller pace than anticipated. Treasuries overcame pre-Fed losses to maintain pressure on yields and the U.S. dollar reversed to the downside. Gold and crude oil prices gained ground. Europe recovered some of yesterday’s decline and Asia registered another mixed session.

The Dow Jones Industrial Average declined 128 points (0.4%) to 34,931 and the S&P 500 Index dipped 1 point to 4,401, while the Nasdaq Composite increased 102 points (0.7%) to 14,763. In moderately heavy volume, 875 million shares were traded on the NYSE and 4.2 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.74 to $72.39 per barrel. Elsewhere, the gold spot price increased $8.80 to $1,808.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.2% to 92.26.

The MBA Mortgage Application Index rebounded by 5.7% last week, following the prior week’s 4.0% decline. The increase came as the Refinance Index jumped 9.3% to more than offset a 1.6% decline for the Purchase Index. The average 30-year mortgage rate fell 10 basis points (bps) to 3.01%.

The advance goods-trade balance showed that the June deficit surprisingly widened, coming in at $91.2 billion, versus estimates calling for it to decrease to $88.0 billion from May’s upwardly-adjusted shortfall of $88.2 billion.

Preliminary wholesale inventories rose 0.8% month-over-month (m/m) for June, compared to expectations of a 1.1% gain, and versus May’s unrevised 1.3% rise.

The Federal Reserve delivered the Federal Open Market Committee (FOMC) monetary policy decision, with the markets closely eyeing rising inflation pressures, the implications of the spreading Delta coronavirus variant, and a still elevated level of unemployment. The Fed kept the target range for the fed funds rate at 0 to 1/4 percent and reiterated that it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. The Central Bank’s statement noted that “with progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen.” The Fed added that “the path of the economy continues to depend on the course of the virus, and progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.” On inflation, the FOMC acknowledged that “inflation has risen, largely reflecting transitory factors.”

As such, the FOMC maintained its monthly asset purchases of $80 billion of Treasury securities and $40 billion of agency mortgage-backed securities. The statement also noted that since last December when the FOMC indicated that it will maintain it asset purchases at these rates until substantial further progress has been made toward its maximum employment and price stability goals, the economy has made progress toward these goals. The statement concluded by noting, “the Committee will continue to assess progress in coming meetings.

The decision came without updated economic projections but every word of Fed Chairman Jerome Powell’s customary press conference was highly scrutinized. Powell pointed out that the labor market is clearly on the recovery path but reiterated that we are still some ways away from substantial progress on the labor market. He noted that inflation is running well above target and near-term inflation risks are to the upside but stressed that inflation is expected moderate. He also said if inflation remains too high then the Fed will act, but he added that they are nowhere near considering raising rates.

Treasuries overcame early losses and finished modestly higher in the wake of today’s Fed decision. The yield on the 2-year note was little changed at 0.20%, while the yields on the 10-year note and the 30-year bond dipped 1 bp to 1.23% and 1.89%, respectively.

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