Stocks and Securities
The S&P 500 finished at its flat line on Wednesday following a volatile day of trading. A late morning surge in the financials sector (+0.9%) lifted the benchmark index from its early depths – the S&P 500 was down as much as 1.0% – and the release of the September FOMC minutes prompted another small bout of volatility in the afternoon.
As for the other major averages, the blue-chip Dow Jones Industrial Average lost 0.4%, the tech-heavy Nasdaq Composite remained unchanged, and the small-cap Russell 2000 lagged, losing 0.5%.
Stocks opened slightly lower following some disappointing September housing data. Housing starts rose to a seasonally adjusted annualized rate of 1.201 million units in September, below the consensus estimate of 1.221 million, and building permits declined to a seasonally adjusted 1.241 million, also below the consensus of 1.273 million.
In addition, the weekly MBA Mortgage Applications Index declined 7.1% week-over-week.
The softer-than-expected data hit the consumer discretionary sector (-0.7%) in particular, with home improvement retailers Home Depot (HD 185.17, -8.41) and Lowe’s (LOW 102.44, -3.54) dropping 4.3% and 3.3%, respectively. The two companies were also downgraded to ‘Neutral’ from ‘Outperform’ at Credit Suisse.
Nonetheless, the S&P 500 rebounded to its flat line largely due to the financial sector’s sudden climb. Investors initially had a muted reaction to U.S. Bancorp’s (USB 52.90, +1.93) better-than-expected earnings, but shares eventually started taking off, ending the day with a gain of 3.8%. Goldman Sachs (GS 228.28, +6.58, +3.0%) and Morgan Stanley (MS 47.19 , +1.25, +2.7%) also had strong performances, extending yesterday’s post-earnings gains.
The minutes from the September FOMC meeting briefly caused the S&P 500 to stumble in late afternoon trading after showing that a number of participants agreed for the need for more gradual rate hikes, and that a number of participants saw a need to hike above the long-run level. Following the minutes, the probability of a December rate hike ticked up to 83.0% from 79.5% on Tuesday.
Also, Treasury yields ticked slightly higher following the minutes with the Fed-sensitive 2-yr yield and benchmark 10-yr yield each advancing two basis points to 2.88% and 3.18%, respectively. The U.S Dollar Index increased 0.6% to 95.31, touching a one-week high.
Relative weakness in the information technology sector (-0.5%) kept the bulls in check on Wednesday. IBM (IBM 134.05, -11.07) dragged on the sector, losing 7.6%, after missing revenue expectations. The Dow component remained upbeat, though, upholding its guidance and expecting its cloud technology to lift revenue moving forward.
In other earnings news, Netflix (NFLX 364.70, +18.30) which we highlighted this morning, climbed 5.3% after reporting higher-than-expected subscriber growth. The company added nearly seven million new subscribers last quarter, with six of the seven million coming from overseas. In addition, Netflix expects to add nine million more in the fourth quarter. The communication services sector, which houses Netflix, advanced 0.5%.
Separately, WTI crude dropped 3.1% to $69.65/bbl, hitting a one-month low, after EIA petroleum data showed a build of 6.5 million barrels in crude oil inventories for the week ended October 12. The oil-sensitive energy sector lost 0.7%, closing near the bottom of the sector standings.
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