US stocks slip post Fed decision

Federal Reserve makes no changes to its policy stance

US stocks ended the Thursday session on a lower note on 17 September 2015 after the Federal Reserve made no changes to its policy stance. The FOMC acknowledged positive labor market conditions in the U.S., but indicated that concerns related to an economic slowdown in China have outweighed the domestic positives. The decision left investors uncertain about the timing of what would be the first rate hike in nearly a decade. The main indexes initially surged, but gradually gave up gains as the central bank's Chairwoman Janet Yellen explained the Fed's moves at a news conference. Ms. Yellen stressed that these developments have weighed on the inflation outlook, contributing to today's decision to maintain status quo.

 

The Dow Jones Industrial Average rose as much as 190 points, but finished 65.21 points, or 0.4%, lower at 16,674.74. The Nasdaq Composite ended the day slightly higher, up 4.71 points, or 0.1% at 4,893.95. S&P 500 rallied to 2,020 during Yellen's news conference, but erased gains to close 5.11 points, or 0.3%, lower at 1,990.20.

Six of the index's 10 main sectors finished lower. Telecoms got hit, while utilities and health-care stocks led gains.

Furthermore, Ms. Yellen emphasized that the expected rate path is more important than the first rate hike, indicating that the Committee expects to see rate normalization by 2018. Hearing '2018' in that context was music to the market's ears, inviting a stampede of buyers in stocks while Treasuries spiked to highs with the 10-yr yield falling ten basis points to 2.20%.

The post-FOMC move higher was followed by a dive to new lows, with the reversal paced by the financial sector which settled in the red as bank stocks responded to rates remaining lower for longer. Meanwhile, another influential grouptechnology also weighed on the broader market, ending near the bottom of the leaderboard after struggling throughout the session. The top-weighted sector was pressured by Oracle as the stock lost 4.0% after its one-cent beat was not enough to dispel concerns about the company's guidance and lack of revenue growth. High-beta chipmakers also struggled with the PHLX Semiconductor Index falling 0.9%.

The market place was relatively calm, overall, after the FOMC statement. Asian stock markets were mixed on Thursday. China's Shanghai stock index was down 2.1% on the day. Japan's Nikkei stock index was up 1.4%on Thursday. European and U.S. stock indexes were weaker on Thursday morning.

On Thursday, US data showed weekly jobless claims fell, underscoring the strength of the labor market, but declines in August housing starts and the September Philadelphia Fed's manufacturing index highlighted potential economic concerns. The initial claims level declined to 264,000 from an unrevised 275,000 while the consensus expected no change at 275,000. Over the past four weeks, the initial claims level has averaged 272,500, and weekly volatility has been minimal, suggesting a strong labor market.

Separately, housing starts declined 3.0% in August to 1.126 mln from a downwardly revised 1.161 mln (from 1.206 mln) in July while the consensus a drop to 1.158 mln. As expected, single-family starts pulled back in August after reaching a seven-year high in July while construction levels remained strong. Also, the current account deficit for the second quarter totaled $109.70 billion while the consensus expected the deficit to hit $112.20 billion. The first quarter deficit was revised to $118.30 billion from $113.30 billion.

The Philadelphia Fed's Business Outlook Survey declined to -6.0 in September from 8.3 in August while the consensus expected an increase to 6.5. That was the first reported contraction in the Philadelphia region since February 2014. The Philadelphia region is not the only region where manufacturing activities experienced a sudden downturn. Just about all of the August regional Federal Reserve manufacturing surveys were negative, and the latest September reading of the New York Fed's Empire Manufacturing Survey reported a second consecutive sizable contraction in manufacturing activities.

Bullion prices ended higher at Comex on Thursday, 17 September 2015. Gold futures climbed in electronic trading on Thursday, as the Federal Reserve left interest rates unchanged. Gold rose after the U.S. Federal Open Market Committee left interest rates unchanged Thursday, but gains were limited since policy-makers indicated they still envision a hike yet this year and some investment flows were going into equities instead. Comex December gold was up $12.20 to $1,131.20 an ounce. December silver rose 9.9 cents, or 0.7%, to $14.984.

Crude oil prices settled lower on Thursday, 17 September 2015 though pared some of their earlier losses after the Federal Reserve left interest rates unchanged and left open the possibility of a rate hike before the end of the year. A lower dollar restricted the drop in prices.

On the New York Mercantile Exchange, October West Texas Intermediate crude settled at $46.90 a barrel, down 25 cents, or 0.5%. It was trading around $46.74 right before the Fed announcement.

The U.S. dollar index traded sharply lower after the Fed news, providing support for dollar-denominated gold in the electronic session.

Tomorrow's economic data will be limited to the 10:00 ET release of the Leading Indicators report for August (consensus 0.2%).

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