U.S. stocks finished the regular trading session lower amid a sharp decline in the final minutes of the session, while earlier the Federal Reserve concluded its monetary policy meeting and raised the target range for its federal funds rate by 25 basis points, as widely expected.
Treasury yields were mostly higher following the earlier release of the existing homes report, but finished lower following the Fed decision. Gold and crude oil prices traded higher and the U.S. dollar dipped.
The Dow Jones Industrial Average (DJIA) decreased 45 points (0.2%) to 24,682
The S&P 500 Index ticked 5 points (0.2%) lower to 2,712
The Nasdaq Composite shed 19 points (0.3%) to 7,345
In moderately heavy volume, 795 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq
WTI crude oil gained $1.63 to $65.17 per barrel and wholesale gasoline was $0.04 higher at $2.01 per gallon
The Bloomberg gold spot price moved $21.04 higher to $1,332.35 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 89.67
Fed increases target range as expected, housing data surprises to the upside
The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, under the leadership of newly appointed Chairman Jerome Powell, unanimously agreeing to increase the target range for its fed funds rate by 25 basis points to 1.50%-1.75%, as widely expected. In its released statement the Committee conveyed that it decided to raise the target range “in view of realized and expected labor market conditions and inflation.” It further added that “the stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2% inflation.” In his initial press conference since taking the Fed reins, Chairman Powell noted that FOMC participants did bring up the recent issue of tariffs, where he summarized “first, there’s no thought that changes in trade policy should have any effect on the current outlook,” but some participants reported in regard to conversations with business leaders that trade policy is a concern going forward for growth.
Existing-home sales in February rose 3.0% month-over-month (m/m) to a 5.54 million annual rate, compared to the Bloomberg forecast of a 5.40 million pace, ending two months of declines, and versus January’s unrevised 5.38 million rate. Sales of single-family homes increased 4.2% m/m, and are now 1.8% higher than year-ago levels, while purchases of multi-family structures fell 6.5%, with the y/y pace also lower. The median existing-home price was 5.9% above year ago levels at $241,700, marking the 72nd straight month of gains. Unsold inventory came in at a 3.4-months pace at the current sales rate, matching last month’s level. Inventory of homes for sale rose 4.6% m/m but were still down 8.1% y/y. Sales soared in the South and the West, while the Midwest and Northeast saw declines. Existing home sales account for the majority of the housing sales market.
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR) that releases the report, said “The very healthy U.S. economy and labor market are creating a sizeable interest in buying a home in early 2018. However, even as seasonal inventory gains helped boost sales last month, home prices – especially in the West – shot up considerably. Affordability continues to be a pressing issue because new and existing housing supply is still severely subpar.” This is something we are keeping an eye on due to the impact on mortgage demand and the financial sector, as discussed by Schwab’s Director of Market and Sector Analysis, Brad Sorensen, CFA, in the latest Schwab Sector Views: Fantastic Financials.
The MBA Mortgage Application Index fell 1.1% last week, following the prior week’s 0.9% gain. The decline came as a 4.5% decrease in the Refinance Index more than offset a 1.4% gain for the Purchase Index. The average 30-year mortgage rate decreased 1 basis point (bp) to 4.68%.
Treasuries finished higher, with the yield on the 2-year note dropping 5 basis points (bps) to 2.30%, and the yields on the 10-year note and the 30-year bond were 2 bps lower at 2.88% and 3.11%, respectively.
While Treasury yields have moderated from a rally to multi-year highs, they have been rangebound as of late. Meanwhile, the haphazard performance of stocks over the past six sessions has brought the markets well off their highs, with the Dow currently negative for the year.
Tomorrow, the U.S. economic calendar will begin with the release of weekly initial jobless claims, forecasted to tick lower to 225,000 from the prior week’s 226,000, followed by preliminary Markit business activity reports, forecasted to show growth accelerated slightly in the manufacturing and services sectors for March. We will also receive the Index of Leading Economic Indicators, expected to have increased 0.5% m/m for February following January’s 1.0% increase. The March Kansas City Fed Manufacturing Index will round out the day, predicted to remain at February’s level of 17 with a reading above 0 indicating expansion in activity.
Europe and Asia finish mixed with trade and Fed meeting in focus
European equities finished mixed with stocks moving back toward unchanged status late in the day, as investors were on the fence ahead of the Fed rate decision, the accompanying economic and interest rate outlooks, and Fed Chief Powell’s press conference. The U.K. markets saw added pressure, as the nation’s retail sector continues to suffer. As well, a mixed jobs report in the country fostered some uncertainty surrounding the Bank of England’s take on the data amid expectations of the Central Bank looking to begin raising interest rates as early as May. Global trade concerns also lingered, as the announcement of tariffs by the U.S. against China could come as early as tomorrow. For more on the global trade landscape.
The euro and British pound gained ground versus the U.S. dollar, while bond yields in the region were mixed.
Stocks in Asia were again mixed on the heels of overnight gains in the U.S., as caution ahead of today’s monetary policy decision from the Fed kept confidence at bay. As well, the ubiquitous trade tensions remained an overhang, with President Trump reportedly readying up to $60 billion in tariffs against China that could be unveiled as early as Thursday. Stocks trading in mainland China and Hong Kong declined in the wake of the uneasiness.
The market impact of escalating trade frictions on the growth of economies and companies may begin to weigh on stocks, especially on emerging market stocks. The metal tariffs mark an escalation by the Trump administration relative to the modest trade actions taken so far and may provoke retaliation by impacted countries, posing further risk to the markets in the coming weeks or months. However, Australian securities advanced on strength from resource-related stocks, and Indian equities rose, getting a boost from financial issues. South Korean shares were nearly unchanged, while markets in Japan were closed for a holiday.
The international economic docket for tomorrow will include a manufacturing PMI read and the All Industry Activity Index from Japan, employment data from Australia, the Ifo business climate survey from Germany, retail sales from the U.K., and Markit business activity reports for France, Germany and the Eurozone. In central bank action, the Bank of England will announce its bank rate decision, with no changes from its current stance expected.