* Major U.S. indexes end down after FOMC results
* Utilities weakest major S&P sector; cons disc sole gainer
* Dollar up; crude down, gold slides; bitcoin down ~4%
* U.S. 10-Year Treasury yield ~1.57%
June 16 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
WALL STREET DIGESTS THE FED, GETS HEARTBURN (1610 EDT/2010 GMT)
Major U.S. equity indexes closed down on Wednesday after news from the Federal Reserve that it expects the first post-pandemic interest rate hikes to be sooner than forecast.
The Nasdaq , S&P 500 and Dow Industrials
finished off around 0.2%-0.8%.
Nearly all major S&P 500 sectors closed lower, with consumer discretionary the only gainer.
Of note, after initial weakness in the wake of the FOMC statement at 2 PM EDT, and then a modest bounce, there was some additional strength that kicked in from around the time Fed Chair Powell began his 2:30 PM EDT press conference.
Although financials were the only winner from statement release to press conference, from the presser on things changed, with discretionary, tech and communication services seeing the most strength then into the close. FANGs were among the outperformers, while financials were red over this hour and half period.
In the end, growth outperformed value on the day.
Regarding the Fed, Frances Donald, Global Chief Economist at Manulife Investment Management said, "The dot plot is now showing two rate hikes by 2023. That's enough of a hawkish surprise for the bond market and its getting all of the attention."
Donald added, "What's interesting here is that the Federal Reserve has increased its estimate of when the first rate hikes will come but not materially changed its 2022 and 2023 projections for growth and inflation. What that tells us is that while the outlook hasn't dramatically changed it seems that the Fed's confidence in returning to a normal environment has."
Here is Wednesday's closing snapshot:
(Terence Gabriel, Sinéad Carew)
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S&P 500 RED AFTER FED (1424 EDT/1824 GMT)
The S&P 500 initially dove with the release of the FOMC Meeting statement.
This after The Federal Reserve brought forward its projections for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a longstanding reference that the crisis was weighing on the economy.
The SPX has snapped back off its low some, but remains down for the day.
Nearly all major S&P 500 sectors are red on the day. Financials are slightly positive, and are the only sector to rally since just prior to the 2 PM EDT release time. Tech is the weakest group over this short period.
With this, the dollar has strengthened, while spot gold has dipped. The U.S. 10-Year Treasury yield
has popped up to around 1.54% from around 1.49%.
Regarding the Fed Statement, Ryan Detrick, Senior Market Strategist at LPL Financial Research said, "There was a big jump in (the Fed’s) inflation expectations, a point above March projections, and with the likelihood of first rate hike now in 2023, there was a knee jerk reaction and the market is trying to digest it."
Detrick added that he thought the market was expecting this, and is having typical Fed day volatility.
"It’s like you get all worked up and excited when the Fed has an announcement and the market sleeps on it overnight and go the other way the very next day."
"There’s no sign of tapering, but we’ll see with the Q&A.”
(Terence Gabriel, Stephen Culp)
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COMPANIES DIVE BACK INTO THE BUYBACK POOL (1240 EDT/1640 GMT)
Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, is out this week with some commentary on buybacks.
According to Silverblatt, after reining in buybacks in Q2 2020 ($88.7 billion; Q1 2020 was $198.7 billion), more companies ventured back into the buyback market as they sought shares to cover employee options being exercised and stem dilution.
He believes this, combined with buying from strong cash-flow companies, drove a buyback rebound in the fourth quarter of 2020 ($130.5 billion; Q3 was $101.8 billion).
Silverblatt adds that Q1 2021 accelerated the return ($178.1 billion), as more companies covered their options and did discretionary buying, thereby reducing their share count and aiding EPS.
For the remainder of 2021, Silverblatt says strong cash-flow considerations are expected to continue to dominate buyback headlines, but the "broader market and economic story may be the breadth, expenditures and willingness of the companies, which mostly shut down their programs over COVID uncertainties, to return to buybacks."
(Terence Gabriel)
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FROM THE FED, WATCH THE DOTS AND THE FORECASTS (1215 EDT/1615 GMT)
All eyes are on the U.S. Federal Reserve for signals on how the central bank could begin unwinding its massive bond-buying program.
However, Fed chairman Jerome Powell is unlikely to provide much beyond acknowledgement that policymakers are "talking about talking about tapering," Michael Pearce, senior U.S. economist at Capital Economics told the Reuters Global Markets Forum.
Pearce is eyeing the Fed's "dot plot," an indication of when policymakers expect interest rate hikes.
"The first rate hike will probably be bumped forward to 2023 in the median projection, and some of the individual dots could be higher for 2022 and 2023," he said.
Such revisions will not be a huge surprise, but Pearce says changes to the Fed's unemployment and inflation forecasts will be key.
Given recent data, Pearce says inflation forecasts will "definitely need to rise," but if policymakers stick to their belief that inflationary forces are transitory, they could lower core inflation forecasts for 2022.
Pearce thinks inflation could be more persistent, noting supply shortages and the possible start to "a larger upturn in the most cyclical components of (the) consumer price index."
A bigger question for Pearce is the impact of rising prices on economic activity. He points to June's University of Michigan survey showing consumers are concerned about the prices of homes, vehicles, and durable goods.
If inflation clamps consumer spending, it would likely prompt revisions to otherwise strong forecasts for U.S. economic growth. Currently, Pearce expects gross domestic product for the second quarter at around 10% annualized.
"By the end of the year, I'd expect U.S. GDP to be pretty much back on its pre-Covid trend path, though I suspect the unemployment rate will still be slightly elevated," he said.
As far as tapering goes, Pearce expects a clearer timeline around August, and a gradual rollback of purchases that takes most of 2022.
(GMF membership link):
(Lisa Mattackal)
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CAUTIOUS EUROPEAN CLOSE (1150 EDT/1550 GMT)
The banking sector being the top loser, with a 0.8% decline, probably tells you all you need to know about what change investors expect from the Fed and the ECB's policy stance.
Yes, not much indeed and easing government bond yields tell us roughly the same story.
Anyhow, aside from banking and auto stocks, this session was fairly positive for the pan-European STOXX 600 with a 0.2% gain. We even had an intra day high of 460.3, just a whisker below the 460.5 record set on Monday.
One disappointing note perhaps was the IPO of Made.com
which lost about 5% on its London debut, another company to fall on its first day of trading in a volatile year for stock market listings.
That list comprises Deliveroo and Alphawave but also France's Believe.
Overall the market price action was fairly limited, which is understandable before a Fed meeting.
"Markets have been in deep freeze the last few days waiting for tonight’s decision", wrote Chris Beauchamp at IG.
"Those hoping for a mis-step from the chairman will probably be disappointed – he knows where the questions will focus and will be determined not to be caught on the hop", he added.
(Julien Ponthus)
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TEMPERING THE TASTE FOR TECH (1129 EDT/1529 GMT)
LPL Financial Research is out with a note this week in which they say it's time to temper tech.
“It’s tough not to like technology given the strong fundamentals and rapid pace of innovation from many tech companies,” explained LPL Equity Strategist Jeffrey Buchbinder. “But we expect cyclical value sectors like financials, industrials, and materials to fare better the rest of the year as the economy gets a reopening jolt.”
Indeed, LPL downgraded technology to neutral primarily for the following reasons:
First off, the reopening. LPL expects the market’s shift toward reopening beneficiaries vs work-from-home stocks to continue.
Secondly, valuations. According to LPL, the P/E for the tech sector based on estimated earnings over the next 12 months, as well as its relative valuation vs the S&P 500 , are both elevated.
Additionally, comparing value to growth based on the Russell 1000 style indexes reveals an "even bigger gap—the Growth Index is trading at a more than 60% premium to the Value Index, the most in 20 years." LPL adds that interest rates, which they expect to rise for the rest of 2021, might take a bite out of richly valued growth stocks.
Finally, LPL says that although the sector is near its all-time high, its relative performance versus the S&P 500 Index peaked last September and has been drifting sideways to lower since then, pointing them to a neutral sector view.
LPL emphasizes that their downgrade doesn’t in any way mean they plan to abandon tech completely, saying that "we believe the sector likely moves higher in the second half of the year, along with the broad market, but we just see better opportunities for outperformance in cyclical value stocks."
(Terence Gabriel)
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COOKING WITH GAS: HOT INFLATION AFFECTS IMPORTS, HOUSING STARTS (1045 EDT/1445 GMT)
Data released on Wednesday provided plenty of fodder for those who are fretting over rising prices and looking to the U.S. Federal Reserve, which concludes its two-day monetary policy meeting this afternoon, for any change in nuance regarding its assertion that the current wave is temporary.
The cost of goods imported to the United States increased by 1.1% in May according to the Labor Department, hotter than the 0.8% consensus and an acceleration from the previous month.
The increase was largely driven by gasoline and industrial supplies, further evidence that supply chain bottlenecks in the face of a demand boom are sending prices skyward.
Year-over-year, import prices heated up to a scalding 11.3%, the highest in nearly a decade and soaring well beyond other major indicators, which are all running at or above the Fed's average annual 2% inflation target.
But Mahir Rasheed, U.S. economist at Oxford Economics (OE), agrees with the Fed's assurances.
"As supply-side constraints gradually dissipate and the influence of base effects gradually fades in the coming months, we expect the pace of import price inflation to moderate in the second half of the year," Rasheed writes.
Here's how those indicators stack up against the central bank's favorite inflation yardstick, core PCE:
A report from the Commerce Department showed groundbreaking on new American homes increased by 3.6% last month to 1.572 million units at a seasonally adjusted annualized rate (SAAR). This was cold comfort considering it, was a smaller-than-expected partial rebound from April's stark 12.1% plunge.
A suburban homebuying frenzy unleashed by social distancing restrictions has sent inventories to record lows, supporting the homebuilding sector. But that same supply crunch has touched building materials, launching lumber prices to the moon and hampering new construction.
Building permits , one of the more forward-looking housing indicators, dropped by 3% to 1.682 million units SAAR, steeper than expected and an acceleration from the 1.3% drop the month prior.
It's worth pointing out, however, that building permits remain well above pre-COVID levels.
"We think construction has some way further to fall, though the shortage of inventory means that activity will remain higher than implied by the mortgage applications data for some time yet," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Speaking of which, dropping interest rates goosed demand for home loans by 4.2% last week, according to the Mortgage Bankers Association (MBA).
A 4-basis-point drop in the average 30-year fixed contract rate - to 3.11% from 3.15% - helped boost applications for refi and purchase loans
by 6% and 2%, respectively.
The increase was also likely attributable, in part, to a rebound from the Memorial Day holiday effect.
"Strong demand and the recent decline in mortgage rates, which are down more than 25 basis points since early April, should support some homebuying activity," says Nancy Vanden Houten, lead economist at Oxford Economics. "But limited supply and sharply higher home prices still present considerable headwinds."
U.S. stock indexes are mixed ahead of the FOMC statement expected at 2pm EDT at the conclusion of its two-day monetary policy meeting.
(Stephen Culp)
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MEME STOCKS LOSING STEAM, QUAD WITCHING COULD MAKE IT WORSE (0930 EDT/1330 GMT)
A basket tracking some of the most popular meme stocks is down by 17% over the past week, analysts at Vanda Research said.
Indeed, such stocks as AMC Entertainment Holdings Inc
, GameStop Corp , Clover Health Investments Corp
and Workhorse Group are all under pressure in the early throes of Wednesday's regular session after a wild ride over the past few weeks.
The current meme stock bubble has been running for three weeks now, just about the same time as the last bubble in January. With retail flows surpassing the peak of Q1 and given the amount of risk embedded in these investments, retail investors will rush to the exit unless there's an immediate rally, Vanda Researchers said.
This week's quadruple witching event could make things even more complicated for meme stocks. In the last couple of days open interest on call options on meme stocks has been declining as traders take profits before the expiry. In response, market makers are unwinding their long-stock hedges, creating a negative feedback loop, analysts added.
Quadruple witching refers to the simultaneous expiration of single-stock options, index options, single-stock futures and index futures, which happens on the third Friday in March, June, September and December.
"All manias run out of energy at some point and this is no different," said Art Hogan, chief market strategist at National Securities in New York.
"It hasn't completely disappeared but overall volumes are starting to peter out and that's just the natural course of events."
(Medha Singh)
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NASDAQ VS COMMODITIES: TIME FOR TECH TO STEP UP? (0900 EDT/1300 GMT)
The tech-laden Nasdaq Composite relative to the Refinitiv/CoreCommodity CRB index appears to once again be at an important juncture on the charts.
The Nasdaq/CRB ratio, on a weekly basis, hit a record high of 80.54 in early November of last year. Since then, however, the Nasdaq has underperformed "stuff." In fact, the ratio hit a 14-month low in early June:
Now nearly 67, the ratio is flirting with what appears to be significant support in the form of a log-scale trend line from its 2011 trough, now around 65.65, as well as the 100-week moving average $(WMA.AU)$, now around 64.40.
The ratio did suffer a one-week closing violation of the support line in late 2018. However, with the market's December bottom that year, it quickly reversed to the upside without breaking the 100-WMA. The trendline then contained weakness in 2019, and early 2020.
Of note, the ratio has been on a record run vs its 100-WMA. In fact, it is on pace for its 499th straight weekly close above this long-term moving average. This current run above the 100-WMA dwarfs the ratio's 155-week streak that lasted into the Y2K tech bubble top.
Thus, in the face of this week's event risks in the form of today's FOMC results , and Friday's quadruple witching , it may now be time for tech to once again step up, in order to underpin a renewed Nasdaq advance relative to commodities.
A ratio weekly close below support can add credence to the view that a sea change in trend is underway. A deeper decline to threaten the March 2000 high, at 28.9, could see the ratio lose more than half its value from current levels.
(Terence Gabriel)
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FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)