Fundamentals, US Markets

Stocks Pare Gains into Close Following FOMC Decision

U.S. Session Key Developments

•    Commodities Higher on Greenback Weakness
•    Job Losses Signify Possible Improvement in NFP

US equities saw significant upside in the morning following yesterday’s M&A activity, and strong indicator releases today, before paring back in the final hour following the FOMC rate decision. The Federal Reserve kept rates at record low levels, while reducing their purchase of agency debt to $175B from $200 billion. Also, the Committee stressed improvements in the economy while inflation is expected to remain low along with rates. Despite initial upside reaction, markets found direction lower in the end as the slightly more hawkish tone. Indicators affecting the trade today included a pre-NFP release by ADP. The employment services firm posted its monthly report worse than expected with cuts of 203,000 jobs in October, while the previous month saw a upward revision. Ultimately large firms saw a further slide in layoffs while small and medium sized firms saw improvement as well. Ultimately, markets have corrected a fair bit off the recent peaks with the S&P500 remaining more than six percent lower. Sidelined liquidity has in previous contractions quickly filled opportunity voids and should fundamental data continue to remain positive, the present situation is likely to see a similar outcome. At the same time, volatility has come down in recent days to just below 28, remaining well above 50-day average below 25.

DJIA 30                      9,802.14                   +30.23               +0.31%
The Dow ended the session slightly higher while initially having gained nearly 1.5%. Volatility erupted following the FOMC rate decision but stocks quickly recovered before leading a general slide in the final hour of trading. Most stocks closed higher while 40% fell along with four of nine sectors down. Major gainers included Drugmaker Merck, up 6.42% on news the firm aims for high single digit growth in earnings for the years ahead. Ultimately, the Dow is off its recent highs by just over three percent, and significant event releases may lead to further volatility in the days ahead as the index fights for support at its 50-day moving average.

S&P 500                    1046.50                   +1.09                 +0.10%
Trading in the broad 500 member S&P index led to a small gain of one-tenth of a percent as approximately half of stocks fell along with a 1.44% slide in Financials. Major firms declining included the four largest banks, JPMorgan, Wells Fargo, Citigroup and Bank of America. Others selling lower included Goldman Sachs and insurers. On the other end of the spectrum, Microsoft rose 1.81% while Wal-Mart maintained its advance by nearly one percent. Ultimately, the S&P500 remains below its 50-day moving average, and weakness into the close today is likely to keep investors on edge about buying just yet.

NASDAQ                         2,055.52                    -1.80             -0.09%
The tech-heavy NASDAQ ended the session lower while having trailed its counterparts throughout the session. All sectors fell with the exception of a 0.57% rise in Technology while more than 60% of stocks declined. Eight of the ten largest firms by market value posted gains, while Qualcomm fell 1.52% ahead of its earnings report, along with a 0.8% fall in Amgen. Much concern remains in the index as it remains the best performer of the five majors with a year-to-date gain of nearly 30%. Morgan Stanley on Tuesday downgraded the sector, commenting that it may underperform and is nearing its peak. Traders seemingly dismissed these fears today as the sector was the only one that ended higher. Ultimately, recent underperformance may continue should markets continue to pullback from recent gains.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com