Stocks erase losses as Fed tapers again
U.S. stocks rallied on Wednesday, 18 June 2014 gaining the most in four weeks, after the Federal Reserve chief signaled no hurry to raise rates. Stocks posted modest gains on Wednesday after the Federal Open Market Committee announced another $10 billion taper, which was widely expected.
The Dow Jones Industrial Average gained 98.13 points, or 0.6%, to 16,906.62. It had been about 17 points lower before the Federal Reserve's policy statement was released at 2 p.m. Eastern. The Nasdaq Composite ended the day up 25.60 points, or 0.6% at 4,362.84. The S&P 500 added 14.99 points, or 0.8%, to 1,956.98, the largest one-day percentage gain in four weeks.
The $10 billion reduction lowered the size of monthly asset purchases to $35 billion, while the remainder of the policy statement struck a familiar tone.
The Fed reiterated its commitment to the current level of interest rates, saying rates are likely to remain low for a considerable time after quantitative easing ends. Furthermore, the FOMC released its economic projections, but those were not too different from the prior forecast either. According to the projections, the Fed expects the jobless rate to be between 6.0% and 6.1% at the end of the year after calling for a rate between 6.1% and 6.3% in its last set of projections.
During the press conference, Fed Chair Yellen justified the taper by saying the economy is on track to meet its objectives and that the GDP contraction observed in the first quarter was an aberration. Ms. Yellen also noted that inflation remains below the 2.0% objective.
The civil war in Iraq remains a major market factor at mid-week and is prompting some keener risk aversion among many traders and investors. Reports Wednesday said violence in Iraq is still flaring. Crude oil prices are at multi-month highs on worries about Iraqi crude oil exports being reduced, and on concerns the violence in Iraq could spread to other Arab nations.
The Russia-Ukraine tensions are still running high this week as Russia has recently cut the natural gas supply to Ukraine and said it will supply natural gas to Ukraine only if paid for in advance.
Economic data at Wall Street was limited to the weekly MBA Mortgage Index and Current Account data for Q1. The MBA Mortgage index fell 9.2% to follow last week's 10.3% increase. The current account deficit for the first quarter totaled $111.20 billion while the consensus expected the deficit to hit $97.80 billion. The fourth quarter deficit was revised to $87.30 billion from $81.10 billion.
Among stocks under focus, Amazon.com Chief Executive Jeff Bezos unveiled the company's first smartphone at an event in Seattle. Amazon shares rose 2.7%. BlackBerry shares rose 3% after the company announced a partnership with Amazon on Wednesday that would give the smartphone maker access to Amazon's Appstore.
Also, shares of FedEx rose 6.2% after the parcel-delivery company's quarterly earnings and sales topped analysts' expectations. Adobe Systems leapt 8.2% after the company late Tuesday reported better-than-expected adjusted earnings.
Bullion prices ended marginally higher at Comex on Wednesday, 18 June 2014. Gold prices gained slightly on Wednesday after the Federal Reserve said it expects to hike short-term interest rates a little faster than previously forecast.
Gold for August delivery ended up 70 cents, or 0.1%, at $1,272.70 an ounce ahead of the Fed statement. On Wednesday, July silver gained 5 cents to settle at $19.78 an ounce.
Crude oil prices ended marginally lower at Nymex on Wednesday, 18 June 2014. July crude oil touched a session high of $106.85 per barrel shortly after floor trade opened but slipped into negative territory following weaker-than-anticipated inventory data. Oil extended losses after the Fed said it expects interest rates to rise at a slightly faster pace in 2015 and 2016.
The energy component brushed a session low of $105.72 per barrel and settled with a 0.3% loss at $105.99 per barrel.
Participation remained on the light side with just over 610 million shares changing hands at the NYSE.
Tomorrow, weekly initial claims (consensus 313K) will be released at 8:30 ET, while the June Philadelphia Fed survey (consensus 13.4) and May Leading Indicators (consensus 0.5%) will cross the wires at 10:00 ET.
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