Fundamentals

U.S. Equities Close Higher as FOMC Keeps Rate Unchanged

U.S. Session Key Developments

•    New Home Sales Unexpectedly Declines
•    FOMC Leaves Fed Funds Rate Unchanged
•    Commodities Suffer Worst Decline in Two Months

U.S. stocks gained in the last hour of trading today, with all three major US Indices closing higher after trading in the red for most of the day.  Stocks rose after the FOMC decided to keep the federal funds rate near zero and reiterated its plans to wind down its agency mortgage-backed securities purchases by the end of the first quarter.  The Fed continued to be optimistic about the economy, saying “economic activity has continued to strengthen and that the deterioration in the labor market is abating.”  Perhaps the most telling information from the statement was Kansas City Fed President Thomas Hoenig’s dissent from the committee’s statement promising to keep rates low.  Major stock indexes had fallen before the Fed released its statement as US new-home sales unexpectedly declined 7.6 percent from November to December and global equities fell for a sixth day.  The greenback was higher throughout the day as investors sought safety in US Treasury bills.  The dollar strength helped push commodities lower throughout the session.  The CRB Commodity Index registered a 1.9 percent loss, its worst single-session percentage slide in two months.  Pit trading in crude closed with a 1.4 percent loss at $73.64, and had been as low as $72.65, a one-month low.  Precious metals were no better this session with gold sinking 1.3 percent to close at $1084.50 and silver also lower.  Among the event risk on the economic slate tomorrow is Initial Jobless Claims for the week ending January 23^rd.  Better than expected data would confirm today’s Fed statement that the labor market is improving.  Markets will also continue to look for news regarding the confirmation proceedings of Fed Chairman Ben Bernanke.  With Bernanke’s first term ending this Sunday and a Senate vote yet to happen, investors have reacted negatively to the uncertainty of who will be leading the world’s strongest economy.

DJIA 30                      10,236.16                   +41.87                    +0.41%
The Dow Jones Industrial Average ended the session higher after spending most of the day in the red.  Boeing Co. was the best performer of the thirty companies, adding 7.3 percent on the day.  The company reported fourth-quarter profit that beat the average analyst estimate by 31 percent and registered a 42 percent increase in sales.  The worst performer was Caterpillar Inc., which slid 4.3 percent after declaring that fourth-quarter earnings fell 65 percent.

S&P 500                        1,097.50                     +5.33                    +0.49%
The broader S&P 500 was pushed higher by financial stocks as the sector added 2.34 percent in the session.  The sector gained as concerns over financial regulation eased and the FOMC reassured investors that its unprecedented easy money policies will continue.  The worst performing sectors were materials and energy, which lost 0.8 percent and 0.6 percent respectively.  The losses came amid renewed weakness in commodities.

NASDAQ                       2,221.41                    +17.68                 +0.80%
The tech-heavy Nasdaq Composite was the best performer of the major US Indices.  The index was pushed higher by Apple, which gained 0.99 percent amid a favorable reaction to the company’s newly launched iPad, as well as pricing for the product.  In addition, Gilead Sciences added 7.1 percent after reporting fourth-quarter profit that beat the average analyst estimate by 10 percent.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com