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Nasdaq Tops 10,000 as S&P 500, Dow Fall for 2nd Day on Dour Fed Forecasts

Nasdaq Tops 10,000 as S&P 500, Dow Fall for 2nd Day on Dour Fed Forecasts
(Daniel Kaesler/Dreamstime)

Wednesday, 10 June 2020 04:06 PM

The Dow and S&P 500 ended a choppy session lower on Wednesday after the Federal Reserve reassured investors of its support for the economy but projected a 6.5% decline in gross domestic product this year.

The Nasdaq, helped by gains in Microsoft and Apple , managed to hold onto a good chunk of its gains and registered a closing record high for a third straight session.

In its latest policy statement, the Fed also forecast a 9.3% unemployment rate at year's end, and officials saw the key overnight interest rate, or federal funds rate, remaining near zero through at least 2022.

The S&P 500 and Dow both moved between gains and losses after the statement, which included the Fed's first projections on the economy since the coronavirus outbreak, and following comments from Fed Chairman Jerome Powell.

"The projections for GDP and for unemployment are that it's going to improve slowly from here, but it still takes a while to get back," said Tom Martin, senior portfolio manager at Globalt in Atlanta.

An S&P index of bank shares, which tend to benefit from rising rates, fell 5.8% in its biggest daily percentage decline since April 15, and the S&P 500 financial index was the biggest drag on the benchmark index.

The Dow Jones Industrial Average fell 282.31 points, or 1.04%, to 26,989.99, the S&P 500 lost 17.04 points, or 0.53%, to 3,190.14 and the Nasdaq Composite added 66.59 points, or 0.67%, to 10,020.35. The S&P 500 was off as much as 0.8% before the Fed statement.

The Fed's pledge to keep monetary policy loose until the U.S. economy is back on track repeats a promise made early in the central bank's response to the coronavirus pandemic. "I noticed a material downward move in the banks as (Powell) talked about yield curve control. That is not something the banks want to see. What it does is it keeps rates down," said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

Shares of Eli Lilly and Co rose late, ending up 1.3%, after its chief scientist told Reuters that it could have a drug specifically designed to treat COVID-19 authorized for use as early as September if all goes well with either of two antibody therapies it is testing.

Declining issues outnumbered advancing ones on the NYSE by a 2.25-to-1 ratio; on Nasdaq, a 1.86-to-1 ratio favored decliners.

The S&P 500 posted 17 new 52-week highs and no new lows; the Nasdaq Composite recorded 92 new highs and three new lows.

Volume on U.S. exchanges was 14.13 billion shares, compared to the 12.69 billion average for the full session over the last 20 trading days.

GLOBAL MARKETS

The dollar slid to a three-month low and a gauge of global stocks fell on Wednesday after the Federal Reserve projected a more sluggish recovery than the market expected, but the Nasdaq hit a fresh high on expectations of low interest rates past 2022.

The greenback fell to three-month troughs against the euro, sterling and Swiss franc after the end of a two-day meeting of the Fed's policy-setting committee, in which it repeated its promise of continued extraordinary support for the economy.

Policymakers projected a 6.5% decline in gross domestic product this year and a 9.3% unemployment rate at year's end. The key overnight interest rate, or federal funds rate, would remain near zero through at least 2022, a Fed statement said.

"What they're looking at is a rebound that is going to take at least until 2022. That fits maybe a little worse-than-expected consensus," said Marvin Loh, senior global macro strategist at State Street Global Markets in Boston.

MSCI's gauge of stocks across the globe shed 0.27% while the Dow industrials and benchmark S&P 500 closed lower. But the Nasdaq rose as low interest rates are good for growth-oriented companies that may take longer to turn profitable, such as Amazon.com as it grew, Loh said.

"They're longer duration-type companies that benefit from a good growth profile. Their earnings are further out," he said.

After last week's surprisingly upbeat jobs report, with the economy adding 2.5 million jobs in May as opposed to forecasts of payrolls falling by 8 million, some investors had hoped for a rosier outlook.

Low rates, however, will hurt banks and their loan portfolios. An S&P subsector of banking shares fell 5.8% in its biggest daily percentage decline since April 15, while the S&P 500 financial sector was the biggest drag on the overall index.

U.S. Treasury yields fell as the Fed promised to maintain bond purchases at "the current pace" of about $80 billion per month in Treasuries and $40 billion per month in agency and mortgage-backed securities.

Benchmark 10-year Treasury yields fell 9 basis points to 0.744%. Two-year yields, which are the most sensitive to rate changes, fell 3 basis points to 0.177%.

The dollar fell about 0.4% against a basket of major currencies to 95.882, after earlier sliding to 95.714, a level not seen since mid-March.

The euro rose as high as $1.1422 and sterling reached $1.2812, with the dollar hitting a three-month low of 0.9425 franc versus the Swiss currency.

Oil rebounded from earlier losses, even as U.S. data showed crude inventories rose to a record high, reviving worries of a persistent glut due to weak demand.

Crude stocks rose by 5.7 million barrels in the week to June 5 to 538.1 million barrels, according to a U.S. Energy Information Administration report.

Brent crude settled up 55 cents to $41.73 a barrel. U.S. West Texas Intermediate (WTI) rose 66 cents to $39.60 after falling more than 2% in the session.

Demand remains subdued as seen in U.S. consumer prices, which fell for a third straight month in May, with underlying inflation weak. The consumer price index dipped 0.1% last month after plunging 0.8% in April, the largest decline since December 2008.

But copper prices rose for a fifth straight session to their highest since January as the metal, which is widely used in the construction and power industries, has been supported by firm demand and an improved technical picture.

Benchmark copper on the London Metal Exchange (LME) was up 0.8% at $5,822 per tonne in official trading.

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.66% for its 10th straight session of gains.

© 2020 Thomson/Reuters. All rights reserved.


   
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The Dow Jones Industrial Average and S&P 500 fell for a second straight day on Wednesday while the Nasdaq Composite posted its first-ever close above 10,000.
wall street, nasdaq, dow, fed, stock market
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2020-06-10
Wednesday, 10 June 2020 04:06 PM
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