Wall Street suffered losses on Wednesday as all three major indexes closed in the red. Markets were up in the early hours of trading buoyed by the Fed’s decision to keep monetary policy unchanged. However, the broader-market lost momentum in the late hours on news of further escalation of the U.S.-China trade conflict. Strong earnings results of Apple Inc. also failed to uplift market sentiment as investors remain concerned about inflationary pressure in the U.S. economy.
The Dow Jones Industrial Average (DJI) closed at 23,924.98, declining 0.7% or 174.07 points. The S&P 500 Index (INX) decreased 0.7% to close at 2,635.67. The Nasdaq Composite Index (IXIC) closed at 7,100.90, decreasing 0.4%. A total of 7.27 billion shares were traded on Wednesday, higher than the last 20-session average of 6.55 billion shares. Decliners outnumbered advancers on the NYSE by 1.06 -to-1 ratio. On the Nasdaq, advancers had an edge over decliners by 1.15 to -1 ratio. The CBOE VIX increased 3.1% and closed at 15.97.
How Did the Benchmarks Perform?
The Dow decreased 0.7% with 24 of the 30-stocks in the index closing in the red while 6 traded in the green. Rising inflation and trade war fear pulled down the blue-chip index in the negative territory for the fourth consecutive days.
The S&P 500 decreased 0.7% led by 2% decline of the Consumer Staples Select Sector SPDR (XLP), 1.4% loss of the Healthcare Select Sector SPDR (XLV) and 1.1% decline of the Financials Select Sector SPDR (XLF). Notably, 9 out of 10 sectors of the benchmark index ended in negative territory.
Fed Maintains Current Monetary Policy
At conclusion of its two-day policy meeting, the Federal Reserve kept the benchmark interest rate unchanged, in line with market expectations. The central bank did not given any hint whether it will raise interest rates very soon or will increase the number of rate hikes this year.
However, the central bank did mention that the latest readings indicates both overall and core inflation have moved close to its 2% target rate and inflation is expected to remain at this level in the medium term.
Market watchers believe that the Fed will most likely raise rate after its next meeting. Investors remain concerned that aggravation of inflation will force the central bank to adopt tighter monetary policy which may raise the cost of funds more than expected.
Trade War Fear Escalates
Markets witnessed panic selling in the late trading hours yesterday following news that President Trump is likely to issue an executive order restricting select Chinese telecommunications equipment makers from selling products in the United States.
The trade conflict between United States and China has been shaking investor’s sentiment during last two months. The United States imposed $50 billion of tariffs on Chinese imports mainly on high-tech products which China retaliated by imposing $50 billion of tariffs on U.S. products primarily agricultural.
The Trump administration is likely to release a list detailing further tariffs on China, to be worth $100 billion. Trump has also threatened to block Chinese technology investment in the United States.
All these developments significantly hit investor’s sentiment. Meanwhile, U.S. Treasury Secretary Steven Mnuchin’s will visit China this week to negotiate for trade related disputes. Market will closely watch this high level trade negotiation.
Apple’s strong Performance Failed to Cheer-Up Markets
Shares of Apple increased 4.4% after the company reported better-than-expected second quarter of fiscal 2018 earnings results. Net earnings of $2.73 per share outpaced the Zacks Consensus Estimate by $0.04 and increased almost 30% year over year. Net sales increased 15.6% year over year to $61.14 billion, which surpassed the Zacks Consensus Estimate of $60.99 billion.
However, total iPhone unit sales of 52.2 million missed the Zacks Consensus Estimate of 52.9 million but increased 3% year over year. Meanwhile, the company’s long-term strategy appears to be to have a number of devices at different price points that are gradually moved to the next version, so the ASP continues to grow over time. (Read More)
Automatic Data Processing Inc. (ADP – Free Report) reported that the U.S. private employers added 204,000 jobs in April. Small, medium and large-sized corporates added 62,000, 88,000 and 54,000 jobs, respectively. This was the sixth month in a row of job growth above 200,000. Meanwhile, March’s job growth was cut to 228,000 from its previous count of 241,000.
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