Benchmarks closed mixed on Wednesday as the Federal Reserve cuts federal funds rates by a quarter percentage point but gave mixed signals for further cuts in the next quarter.
The Dow Jones Industrial Average (DJI) rose 0.1% or 36.28 points to close at 27.147. The S&P 500 added 1.03 points or less than 0.1% to close at 3,006.73. The Nasdaq Composite Index closed at 8,177.39, sliding 8.63 points or 0.1%. The fear-gauge CBOE Volatility Index (VIX) decreased 3.5% to close at 13.95. Decliners outnumbered advancers on the NYSE by a 1.21-to-1 ratio. On Nasdaq, a 1.52-to-1 ratio favored decliners issues.
How Did the Benchmarks Perform?
Out of 11 major sectors of S&P 500, six climbed, which was led by S&P utilities index that rose 0.5%. The interest-rate sensitive S&P 500 banks rose 0.7% The S&P 500 posted 19 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 42 new highs and 38 new lows. The volume on U.S. exchanges was 6.7 billion shares, compared with the 6.9 billion-share average over the last 20 trading days
Fed Cuts Rate as Expected
On Sep 18, Federal Reserve Chairman Jerome Powel announced that Fed will be lowering the benchmark interest rate to a range of 1.75% to 2% as a step to mitigate the global risks and “weakened” business investment and exports. But he also said in an accompanying statement that “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective are the most likely outcomes.”
The rate cut had matched the investors’ expectation but accompanying statement left behind an uncertainty of any rate cut by the end of 2019. In fact, the market deciphers this statement as the final rate cut this year. Also the Powell mentioned this clearly in the conference that the Fed funds rate was cut “in order to provide insurance against risks,” which definitely included the concerns over U.S.-China trade policy.
This lowering of funds rate lifted the bond yields as the yield of 10-year U.S. Treasury note came in at 1.788%, while the 2-year U.S. Treasury note yield was 1.754%. Rise in bond yield also pushed the shares of the banking industry to rise. JPMorgan Chase & Co.’s (JPM – Free Report) shares rose 1%, while Citigroup Inc. (C – Free Report) and The Goldman Sachs Group, Inc. (GS – Free Report) rose 0.9% and 0.5%, respectively.
Shares of JPMorgan, Citigroup and Goldman Sachs carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The central bank also intervened in the money markets on Wednesday to solve the unexpected liquidity issue. Major shares also rebounded as Powell ensured that Fed will act to “resume the organic growth of the balance sheet sooner”in order to resolve the shortage in liquidity.
Along with above events another move by the Fed came in unexpected to Wall Street as on Sep 17. The Fed implemented its first overnight repurchase auction in nearly 10 years to bring its benchmark rate back to 2-2.25% range by purchasing repos worth $53 billion. On Wednesday, the New York Fed conducted a second repurchasing auction that injected $75 billion; with this move it bought securities from Wall Street dealers temporarily.
Developments in Saudi
On Wednesday, the Middle East tension seem to widen as Saudi Arabia’s Defense Ministry provided evidence in form of debris from the Aramco facilities that puts Iran’s involvement into question. The evidence indicates the origin of the attack was not Yemen rather from the north and Iran. The debris included Iranian drones and cruise missiles.
After the news, President Donald Trump has called for more sanctions on Iran and the U.S. Secretary of State Pompeo is also heading to Saudi Arabia. Trump’s move seems to be a major step against Iran though he had said earlier that he does not want a war with Iran. A team of experts from the United Nations is investigating the attack and the UN Secretary General Antonio Guterres has warned the middle east of “devastating” consequences if the crisis escalates.
Stocks That Made Headline
Southwest Buoys Hope With Q3 Unit Cost Guidance Cut
Southwest Airlines Co. (LUV – Free Report) has provided a guidance update on its third-quarter 2019 performance. Despite Boeing 737 MAX aircraft’s grounding issues (the carrier has removed the aircraft from its fleet through Jan 5, 2020) and 600 flights being cancelled in September due to Hurricane Dorian, the company seems optimistic about its upcoming quarterly results. (Read More)
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