- Dow Jones and S&P 500 close lower after Treasury yields are pulled lower
- Traders cheer the accommodative nature of the policy stance announced by the Fed
- Banks trade lower after the announcement
Wednesday saw the Dow Jones Industrial Average and S&P 500 trade lower after the Federal Reserve’s impending monetary policy announcement pulled Treasury yields down, dragging bank shares lower.
The day ended with Goldman Sachs at the front of the 30-stock Dow with 141 points. S&P 500 traded 0.3 percent lower. The Nasdaq showed an increase by closing 0.1 percent higher.
The hike forecast was brought down for 2019 with a reduction of two hikes. An indication by the central bank showed that it intended to reduce its enormous $4.2 trillion balance sheet by September. This, however, comes as the Fed also downsized its economic growth forecast for 2019.
Traders Support the Fed’s Announcement
Traders cheered the accommodative policy stand announced by the Fed, which is actually supportive of equity prices as stocks gained lower.
“Expectations were to remove one dot from the dot plot and to have some description of when the balance sheet runoff would conclude,” said Art Hogan, a chief market strategist at National Securities. “This actually exceeds expectations.”
However, Fed’s announcement dragged down shares after it knocked down bank stocks on the low. Yields fell sharply on the Treasury announcement, with the benchmark 10-year rate falling to its lowest level in a year to trade at 2.539 percent. The 2-year yield also dropped to 2.394 percent.
Banks Hit Low Levels
Bank stocks were reported to be on the low with the SPDR S&P Bank ETF (KBE) fell to 3.3 percent. Goldman Sachs declined 3.5 percent while Bank of America, Morgan Stanley, J.P. Morgan Chase, and Citigroup all fell more than 2 percent.
“The market might be pricing in more than a cut through next year,” said Mike Collins, a senior portfolio manager at PGIM Fixed Income. “It feels like they’re done.”
He added:
“It’s really a tricky spot. If things slow too much and the Fed starts cutting, that’s actually not a great environment for equities or corporate earnings or credit risk,” Collins said. “It can become a self-fulfilling prophecy, for sure.”
President Donald Trump announced that U.S. tariffs on Chinese goods could stay on for a long-time increasing pressure on equities.
“We’re not talking about removing [tariffs], we’re talking about leaving them for a substantial period of time because we have to make sure that if we do the deal with China that China lives by the deal,” Trump told reporters.
His comments confused some traders; however, as Trump also said a deal is “coming along nicely.”