The Federal Reserve Open Market Committee's two-day summit
failed to announce anything new to boost the economy but for the
extension of Operation Twist. This was definitely not enough to
lift investor sentiment as benchmarks ended almost unchanged.
Indices hovered within a tight range through the morning, but with
the commencement of Fed Chairman Ben Bernanke's news conference in
the afternoon benchmarks slipped lower. However, positive
developments in Europe HELPED markets ended close to where they had
started.
The Dow Jones Industrial Average (DJI) slipped 0.1% to end at
12,824.39. The Standard & Poor 500 (S&P 500) dropped 0.2%
to finish yesterday's trading session largely changed at 1,355.69.
The tech-laden Nasdaq Composite Index edged up marginally, by 0.02%
to close just 0.69 points higher at 2,930.45. The fear-gauge CBOE
Volatility Index (VIX) slumped 6.2% and settled at 17.24.
Consolidated volumes on the New York Stock Exchange, American Stock
Exchange and the Nasdaq were 6.57 billion shares, lower than last
year's daily average of 7.84 billion. Advancing and declining
stocks ran neck to neck on the NYSE; 49% advanced while 48% moved
lower.
Investors were waiting expectantly for the outcome of the
Federal Reserve Open Market Committee's two-day meet, and onlookers
had already anticipated an extension of 'Operation Twist'. This is
an ongoing plan that swaps the short-term debt in its portfolio
with long-term Treasury bonds and is aimed at cutting down
borrowing costs. The current program is due to end on June 30. In a
recent meeting, the Fed had decided to extend Operation Twist till
the end of 2012. Thus, when the central bank made a announcement
that was all too predictable, investors found to reason to
cheer.
Clearly, investors had been hoping for more and were looking
forward to a third round of bond purchases. Over the past couple of
weeks, investor hopes for fresh monetary stimulus was buoyed after
Chicago Federal Reserve Bank President Charles Evans and the
Atlanta and San Francisco Fed presidents talked about injecting
more liquidity into the system.
However, the central bank dashed all such hopes and markets
dropped into the red since Bernanke did not mention a third round
of quantitative easing during his news conference. Nonetheless,
Bernanke did not completely negate chances of such a measure in the
future, but that depends on worsening labor market conditions.
Bernanke said: "We still do have considerable scope to do more and
we are prepared to do more…If we're not seeing sustained
improvement in the labor market that would require additional
action".
Alongside, the FOMC statement noted: "To support a stronger
economic recovery and to help ensure that inflation, over time, is
at the rate most consistent with its dual mandate, the Committee
expects to maintain a highly accommodative stance for monetary
policy. In particular, the Committee decided today to keep the
target range for the federal funds rate at 0 to 1/4 percent and
currently anticipates that economic conditions--including low rates
of resource utilization and a subdued outlook for inflation over
the medium run--are likely to warrant exceptionally low levels for
the federal funds rate at least through late 2014".
While domestic developments failed to impress the investors,
things looked better on the other side of the Atlantic. After
prolonged political uncertainty in Greece that hugely dampened
benchmarks throughout May, the nation was finally able to get a
clear picture on who is forming the government. After the weekend
election, where conservative New Democracy party managed a narrow
victory, the party has joined hands with the Democratic Left party
and the Socialist Pasok party to form a coalition government.
Meanwhile, German Chancellor Angela Merkel spoke of the
possibility of employing European security funds to buy bonds.
Merkel said: "There are no concrete plans that I know of but there
is the possibility in the EFSF and the ESM to buy bonds on the
secondary market, bound up of course always with conditions". She
further added: "But that is a purely theoretical comment about the
contractual situation".
Coming back to the home front, the Nasdaq outperformed fellow
benchmarks for the third-consecutive day. It was the lone benchmark
to finish in the green yesterday, even though it managed only
marginal gains. A decent performance from the technology sector
that helped Nasdaq avoid the red zone and the Technology Select
Sector SPDR (XLK) was up 0.2%. Among tech stocks, Microsoft
Corporation (NASDAQ:
MSFT
), Oracle Corporation (NASDAQ:
ORCL
), Dell Inc. (NASDAQ:
DELL
), NVIDIA Corporation (NASDAQ:
NVDA
), Texas Instruments Incorporated (NASDAQ:
TXN
) and Intel Corporation (NASDAQ:
INTC
) jumped 0.8%, 1.9%, 1.0%, 1.6%, 1.0% and 0.5%, respectively.
DELL INC (DELL): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
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NVIDIA CORP (NVDA): Free Stock Analysis Report
ORACLE CORP (ORCL): Free Stock Analysis Report
TEXAS INSTRS (TXN): Free Stock Analysis Report
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