Markets slumped to their fifth-straight day of losses after
minutes from the Federal Reserve's June meeting revealed no
additional economic measures were in the offing. The central bank
would only consider further economic measures if there were more
signs of the economy was weakening. However, an upward rally almost
at the end of the trading session helped the markets to recover
from their day's lows. Industrial and technology sectors suffered
heavy losses for the second consecutive day.
The Dow Jones Industrial Average (DJI) shed 0.4% and was down to
12,604.53. The Standard & Poor 500 (S&P 500) closed close
to the levels it started the day at, slipping a negligible 0.01% to
close at 1,341.45. The tech-laden Nasdaq Composite Index lost 0.5%
and finished yesterday's trading session at 2,887.98. The
fear-gauge CBOE Volatility Index (VIX) dropped 4.1% and settled at
17.95. Consolidated volumes on the New York Stock Exchange, the
Nasdaq and the American Stock Exchange were roughly 6.02 billion
shares, lower than the year-to-date daily average of 6.85 billion.
The advancing stocks edged past the decliners on the NYSE; as for
51% of advancers, 45% stocks ended lower.
The trading session was dominated by what the minutes from the
Federal Open Market Committee's meeting had to suggest. The meeting
was held last month on the 19
th
and 20
th
at the offices of the Board of Governors of the Federal Reserve
System in Washington, D.C., and the central bank was divided over
the implementation of additional economic measures. "A few" policy
makers were in support of further economic measures in the current
scenario and the FOMC minutes noted: "A few members expressed the
view that further policy stimulus likely would be necessary to
promote satisfactory growth in employment and to ensure that the
inflation rate would be at the Committee's goal".
However, "several" members opined otherwise and they believed
that economic stimulus can be put on hold until the economy
deteriorated further. According to the minutes: "Several others
noted that additional policy action could be warranted if the
economic recovery were to lose momentum, if the downside risks to
the forecast became sufficiently pronounced, or if inflation seemed
likely to run persistently below the Committee's longer-run
objective".
Thus, the division within the FOMC was evident and investors'
hopes were dashed yet again. Investors have been hoping for a third
round of quantitative easing ever since the second one ended last
year. These hopes have been fuelled by various reasons at different
phases. Lately these expectations were based on several weak
economic readings both on the domestic and global front over the
past several days.
Even the latest FOMC minutes acknowledged the sorry state of the
economy. According to the minutes: "Growth in employment has slowed
in recent months, and the unemployment rate remains elevated.
Business fixed investment has continued to advance. Household
spending appears to be rising at a somewhat slower pace than
earlier in the year. Despite some signs of improvement, the housing
sector remains depressed. Inflation has declined, mainly reflecting
lower prices of crude oil and gasoline, and longer-term inflation
expectations have remained stable".
Nonetheless, as "several" policy makers wait for further signs
of weakening, investors would have to wait longer. In fact,
economists opined that the central bank might not come up with
additional measures even in its next meeting, scheduled at the end
of this month. They also believe that policy makers might wait and
observe developments in the labor market and then decide about
economic stimulus accordingly.
Industrials and technology stocks suffered sharp losses
yesterday. The Industrial Select Sector SPDR (XLI) dropped 0.7%.
Cummins Inc. (NYSE:
CMI
), Deere & Company (NYSE:
DE
), Masco Corporation (NYSE:
MAS
) and The Boeing Company (NYSE:
BA
) lost 3.9%, 0.6%, 1.3% and 2.3%, respectively. As for the
technology sector, the Technology Select Sector SPDR (XLK) dropped
0.5%. Among the decliners, SanDisk Corporation (NASDAQ:
SNDK
), Microsoft Corporation (NASDAQ:
MSFT
), Computer Sciences Corporation (NYSE:
CSC
) and Ciena Corporation (NASDAQ:
CIEN
) plunged 1.9%, 1.5%, 1.1% and 7.9%, respectively.
BOEING CO (BA): Free Stock Analysis Report
CIENA CORP (CIEN): Free Stock Analysis Report
CUMMINS INC (CMI): Free Stock Analysis Report
COMP SCIENCE (CSC): Free Stock Analysis Report
DEERE & CO (DE): Free Stock Analysis Report
MASCO (MAS): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis
Report
SANDISK CORP (SNDK): Free Stock Analysis Report
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