Fed minutes suggested that monetary stimulus would be arriving
soon and benchmarks pared much of their initial losses to close
mixed on Wednesday. Minutes from the Federal Open Market Committee
(FOMC) noted that policy makers were worried about economic growth
and "many members" are in favor of additional measures. Separately,
the National Association of Realtors came out with improved
existing home sales data.
The Dow Jones Industrial Average (DJI) dropped 0.2% and ended at
13,172.76. The Standard & Poor 500 (S&P 500) added paltry
gains of 0.02% to finish yesterday's trading session hardly changed
at 1,413.49. The tech-laden Nasdaq Composite Index increased 0.2%
and closed at 3,073.67. The fear-gauge CBOE Volatility Index (VIX)
edged up a meager 0.6% and settled 0.09 point higher at 15.11.
Consolidated volumes on the New York Stock Exchange, American Stock
Exchange and Nasdaq were roughly 5.45 billion shares, once again
lower than the daily average of 6.62 billion. Decliners outshone
advancers; as for three stocks that closed in the negative zone,
two finished in the green.
The day was dominated by FOMC minutes. Apart from the fact that
summer holidays are underway, investors have also adopted a
wait-and-watch attitude over the past few weeks, and both these
factors have kept volumes low. Investors are cautiously awaiting
concrete actions by the central banks of the U.S., the E.U. and
even China. In this context, FOMC minutes helped the benchmarks
recover their initial losses to an extent.
Getting into the details of FOMC minutes, the most important
part of it which lifted the mood was: "Many members judged that
additional monetary accommodation would likely be warranted fairly
soon unless incoming information pointed to a substantial and
sustainable strengthening in the pace of the economic recovery".
Investors were quick to react to news that "many members" this time
voiced their support for the need of monetary measures, or a third
round of quantitative easing (QE3). This compares favorably with
the fact that only "A few" policy makers were in support of further
economic measures according to previous FOMC minutes.
With investors' belief riding high that the Fed minutes had
increased the possibility of QE3, all eyes will now be on the
central bank's annual meeting that is scheduled at the end of next
week at Jackson Hole. Investors' hopes for additional economic
measures have been dashed on earlier occasions. However, with
macroeconomic challenges looming large and a number of dismal
economic readings, their hopes are riding high. In fact, according
to Reuters, market strategists commented that the Street believes
that the Fed will have to plunge into action 'sooner rather than
later'.
Incidentally, while the Fed looked for soft signs from the
economy, housing data came in positive yesterday. The National
Association of Realtors reported that total existing-home sales
jumped 2.3% in July to climb to a seasonally adjusted annual rate
of 4.47 million. The chief economist of NAR, Lawrence Yun,
commented: "Mortgage interest rates have been at record lows this
year while rents have been rising at faster rates. Combined,
these factors are helping to unleash a pent-up demand".
The report gave a boost to the housing sector and the SPDR
S&P Homebuilders (XHB) jumped 1.6%. Among the stocks, Toll
Brothers Inc (NYSE:
TOL
), PulteGroup, Inc. (NYSE:
PHM
), D.R. Horton, Inc. (NYSE:
DHI
), Beazer Homes USA, Inc. (NYSE:
BZH
), Lennar Corporation (NYSE:
LEN
), M/I Homes Inc (NYSE:
MHO
) and KB Home (NYSE:
KBH
) gained 3.8%, 3.9%, 4.1%, 2.4%, 3.8%, 4.2% and 2.8%,
respectively.
BEAZER HOMES (BZH): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis
Report
KB HOME (KBH): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
Report
M/I HOMES INC (MHO): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
Report
TOLL BROTHERS (TOL): Free Stock Analysis Report
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