Stocks Close Mixed As Fed Minutes Lead To Volatility - U.S. Commentary

(RTTNews) - After drifting higher over the course of morning trading on Wednesday, stocks saw considerable volatility in the afternoon following the release of the minutes of the latest Federal Reserve meeting. The major averages eventually ended the session mixed.

While the tech-heavy Nasdaq climbed 23.39 points or 0.5 percent to 4,739.12, the Dow and the S&P 500 closed nearly flat. The S&P 500 inched up 0.42 points or less than a tenth of a percent to 2,047.63, but the Dow edged down 3.36 points or less than a tenth of a percent to 17,526.62.

The choppy trading seen late in the session came as the minutes of the Fed's April monetary policy meeting hinted strongly at the possibility of an interest rate hike next month.

Most participants determined it would likely be appropriate to raise rates in June if incoming data is consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the 2 percent objective.

The Fed noted that a few participants judged it appropriate to hike rates at the April meeting due to their assessment that downside risks associated with global economic and financial developments had diminished substantially.

However, most participants wanted to keep rates unchanged but leave open the possibility of an increase in the federal funds rate at the June meeting.

The minutes reinforced the concerns about a rate hike stirred up by yesterday's upbeat housing and industrial production data as well as a report showing a bigger than expected increase in consumer prices.

Chris Low, chief economist at FTN Financial, said, "We continue to expect the Fed will NOT raise rates in June. But the minutes indicate there will be a lively discussion and the decision will be a close call, as apparently it was in April."

"It almost goes without saying, but in this context the next few employment, retail sales and consumption reports take on added significance," he added.

Among individual stocks, shares of Andersons (ANDE) moved sharply higher after the diversified agribusiness rejected an unsolicited takeover offer from HC2 Holdings valuing the company at $1 billion.

Home improvement retailer Lowe's (LOW) also moved to the upside on the day after reporting better than expected first quarter results.

On the other hand, shares of Target (TGT) came under pressure after the retailer reported better than expected first quarter earnings but on disappointing same-store sales.

Sector News

Gold stocks showed a substantial move to the downside following the release of the Fed minutes, dragging the NYSE Arca Gold Bugs Index down by 7.8 percent.

The sell-off by gold stocks came as the price of the precious metal came under pressure in electronic trading due to a jump in the value of the U.S. dollar.

Significant weakness also emerged among oil service stocks, as reflected by the 3.3 percent drop by the Philadelphia Oil Service Index. The index fell to its lowest closing level in over a month.

Interest rate-sensitive utilities and commercial real estate stocks also came under considerable selling pressure, adding to the steep losses posted on Tuesday.

On the other hand, financial stocks saw continued strength on the day, driving the Dow Jones Banks Index and the NYSE Arca Broker/Dealer Index up by 3.8 percent and 3.3 percent, respectively.

Within the financial sector, JPMorgan Chase (JPM) posted a notable gain after raising its quarterly dividend to 48 cents per share from 44 cents per share.

Electronic storage, semiconductor, and biotechnology stocks also showed notable moves to the upside, contributing to the higher close by the Nasdaq.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Wednesday. Japan's Nikkei 225 Index edged down by 0.1 percent, while China's Shanghai Composite Index and Hong Kong's Hang Seng Index slumped by 1.3 percent and 1.5 percent, respectively.

Meanwhile, European stocks closed mostly higher following a choppy trading session. The French CAC 40 Index and the German DAX Index both advanced by 0.5 percent, although the U.K.'s FTSE 100 Index closed just below the unchanged line.

In the bond market, treasuries pulled back sharply in reaction to the Fed minutes. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped by 12.1 basis points to 1.880 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed minutes, although reports on weekly jobless claims and Philadelphia-area manufacturing activity are also likely to attract attention.

Additionally, Cisco Systems (CSCO) is releasing its fiscal third quarter results after the close of today's trading, and Wal-Mart (WMT) is due to release its first quarter results before the start of trading on Thursday.