This post was originally published on this site
Benchmarks closed in the red on Wednesday suffering a late selloff, following the release of minutes from the Federal Reserve. The broader market suffered a setback after the central bank said it was looking to reduce the $4.5 trillion in bonds on its balance sheet and expressed concerns that stocks were overvalued. Meanwhile, investors digested ADP data before the release of nonfarm payrolls data on Friday. Oil prices pared some gains due to an increase in U.S. crude inventories and increase in U.S. oil production.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) declined 0.2% to close at 20,648.15. The S&P 500 fell 0.3% to close at 2,352.95. The Dow posted their biggest one-day reversal since February 2016. Initially, Dow posted a gain of 200 points but ended with a loss of 41.09 points as 19 of the 30 blue-chip companies closed lower. The tech-laden Nasdaq Composite Index, which had reached an all-time intraday high of 5,936.39 closed at 5,864.48, declining 0.6%. The fear-gauge CBOE Volatility Index (VIX) gained 9.3% to settle at 12.89. A total of around 7.58 billion shares were traded on Wednesday lower than the last 20-session average of 6.8 billion shares. Decliners outpaced advancing stocks on the NYSE. For 33% stocks that advanced, 64% declined.
The broader market retreated from intra-days high on Wednesday after the Federal Reserve released minutes from its March meeting. Federal Reserve hinted that it could begin reducing its $4.5 trillion balance sheet later this year. Though no time table was mentioned about the unwinding of the $4.5 trillion in bonds on its balance sheet, traders are contemplating that the central bank may roll back the principal amount to treasuries. Such speculation had an adverse impact on the equity market. However, investors expected a more hawkish statement from Fed since no details were provided about the process of unwinding.
The central bank had accumulated most of these bonds during three rounds of “quantitative easing”, a monthly bond-buying program, intended to ease out the financial crisis. The shedding of $4.5 trillion in bonds is expected to have an impact on markets due to its large size. Meanwhile, in March, the Committee approved hike in the benchmark interest rate by a quarter-point.
Lofty Valuations of Stocks
The Fed also raised concerns that stocks were overvalued, which further contributed to the day’s losses. The minutes released by Fed showed that some measures of valuations, like price-to-earnings ratios, rose above historical norms. The minutes released by Fed also showed that some participants believe that stocks were overvalued going by “standard valuation measures.”
Earlier in the session, positive employment data released from ADP helped stocks to experience some initial gains. According to ADP, there was an increase of 2,63,000 private sector jobs last month, up from a revised 245,000 in February. As per ADP, 57,000 jobs were added in professional and business sectors whereas leisure and hospitality added another 55,000. The construction industry saw an increase of 49,000 jobs and the manufacturing sector added 30,000 positions. Investors were closely watching ADP data in order to gauge the nature of the nonfarm payrolls report scheduled for release on Friday.
Nine of the S&P’s 11 major sectors ended lower on Wednesday, with Financials and technology sectors emerging as worst performing sectors. The broader Financial Select Sector SPDR (XLF) decreased 0.8%. Some of the key holdings of the financial sector in S&P 500 including JPMorgan Chase JPM and Wells Fargo & Co WFC declined by 1.3% and 0.4% respectively. The Technology Select Sector (XLK) fell 0.4%. Some of its key holdings, including Apple Inc. AAPL and Microsoft Corp MSFT fell by 0.5% and 0.3% respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oil price Gain
Oil prices were boosted following an outage at the largest UK North Sea oilfield. However, oil prices pared some gains due to a surprise increase in U.S. crude inventories. WTI crude prices gained 0.2% and closed $0.12 higher at $51.15. Initially, oil prices rose but later it fell after the U.S. government reported a weekly rise in crude inventories of 1.6 million barrels.