FOMC monitoring market turmoil for impact on U.S. economy
While Apple slides, Facebook soars after market on revenue
U.S. stocks retreated as the Federal Reserve signaled that financial-market turmoil may pose risks to its outlook for the U.S. economy, while largely maintaining its policy stance. The dollar extended losses versus the euro, while two-year Treasuries rose.
The Standard & Poor’s 500 Index sank as the Fed said it is “closely monitoring” developments from China to Europe as well as oil for any adverse impact on the U.S. economy. Apple Inc. and Boeing Co. plunged on disappointing results as the two accounted for more than half of the Dow Jones Industrial Average’s 223-point slide. Yields on two-year Treasury notes fell a third day, as the Fed kept benchmark rates unchanged and said any future hikes would be gradual. Oil rose past $32 a barrel, and gold gained.
“If the Fed is worried about where the economy is headed, then markets are worried that the Fed is worried about where the economy is headed,” said Robin Anderson, senior economist in Des Moines, Iowa at Principal Global Investors, which manages $333 billion. “Given just the uncertainty about where oil is headed, where global growth is headed, you add the Fed into the mix, you’re going to have a choppy market.”
The Federal Open Market Committee is “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook,” the central bank said.
The Fed’s statement ripped attention away from the oil patch, where crude’s gyrations have increasingly taken the global equities market along for the ride. The correlation between crude and U.S. stocks sits at historically tight levels, and so far, the relationship has largely overshadowed the corporate earnings season.
Stocks
The S&P 500 fell 1.1 percent to 1,882.95 as of 4 p.m. in New York, and is headed for a January loss of 7.9 percent, the most since May 2010, with anxiety over global growth wiping as much as $2.4 trillion from the value of U.S. equities this year.
Apple, the world’s most valuable company, and Boeing accounted for more than half of the 1.4 percent drop in the Dow Jones Industrial Average. Apple plunged 6.6 percent after it forecast the first sales decline since 2003.
Suppliers to the smartphone sector also retreated, with losses at ARM Holdings Plc, Dialog Semiconductor Plc and AMS AG. Boeing capped its worst drop since August, after the planemaker said profit this year would miss analyst estimates by more than a dollar a share.
The earnings season is in full swing, with at least 32 S&P 500 companies reporting today. Facebook Inc. surged in after-market trading as the company’s revenue topped estimates. Even as the pace of the reporting season picks up, equity investors have remained fixated on the direction of oil prices.
Since the Fed raised interest rates last month for the first time in almost a decade, turmoil in financial markets and a dimming of the outlook for global growth have spurred investors to expect a slower rise in borrowing costs. The median projection of policy makers’ forecasts in December called for four quarter-point rate increases in 2016; futures markets indicate that traders see fewer.
“The Fed and the market are still a bit apart in their expected path for where Fed funds move,” Bill Northey, chief investment officer at US Bank’s Private Client Reserve in Helena, Montana, said by phone. “There’s still some reconciliation that needs to occur over the first half of 2016 in terms of the Fed either modifying their statement of economic projections or alternatively, assuring the market there is a sufficient degree of strength to withstand the expectations they’ve laid out.”
In Canada, Bombardier Inc.’s shares fell below C$1, the latest blow for the iconic Canadian manufacturer as it buckles under $9 billion in debt. The nation’s equity benchmark advanced 0.3 percent as energy producers and banks climbed.
Bonds
Treasuries recovered from their weakest levels of the day. Led by shorter maturities, yields retreated from their Wednesday highs as stocks fell following the Fed’s decision to keep its target range at 0.25 percent to 0.5 percent, as predicted by Wall Street analysts.
Policy makers’ statement led traders to reduce bets that the Fed will raise rates again as soon as March, following liftoff from near zero in December. After oil prices and global stocks tumbled in January, bond bulls had been looking for more evidence that the central bank would scale back its projected path of four rate increases in 2016.
Even before the January turmoil, fed funds futures were pricing in just two rate increases by year-end. That’s shrunk to about one, and traders see a one-in-four chance the Fed will raise rates at its meeting in March, down from 51 percent at the start of this year, data compiled by Bloomberg show.
Global corporate bond sales are set for the worst January since 2005, with companies having only issued about $329 billion of debt, according to data compiled by Bloomberg. That’s even after Anheuser-Busch InBev NV held the second-largest dollar-denominated sale on record, raising $46 billion to fund the takeover of SABMiller Plc.
Currencies
The dollar weakened 0.2 percent Wednesday to $1.0893 per euro, while gains against some higher-yielding currencies left the Bloomberg Dollar Spot Index up 0.1 percent, its first increase this week.
New Zealand’s dollar sank more than 1 percent after the nation’s central bank left rates on hold, but indicated it may need to ease policy further this year.
Commodities
WTI futures rose 2.7 percent to $32.30 a barrel. Stockpiles at the biggest U.S. storage hub dropped even as nationwide crude supplies climbed to the highest level since 1930.
“Cushing is the delivery point for WTI and the drop there alleviates concerns” that the hub will run out of space, said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “Cushing supplies fell, production dropped the first time in seven weeks, overall supplies fell and demand increased.”
U.S. Steel Corp. shares and bonds plunged as the country’s second-largest steelmaker posted its third-biggest quarterly loss on record and signaled it may burn more cash this year.
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