Dow Jones Industrial Average turns negative, even after the Fed signals a pause in rate increases

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January 31, 2019 12:05pm INDEXDJX:.DJI NYSE:DIA

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From Chris Matthews and Mark Decambre: U.S. stocks were mostly lower Thursday, the busiest day of fourth-quarter earnings season, a day after the Federal Reserve signaled that rate increases are on pause and that its next policy move will depend on economic data.

How are benchmarks performing?

The Dow Jones Industrial Average DJIA, -0.09% fell 46 points, or 0.2% to 24,967, while the S&P 500 index SPX, +0.89% rose 17 points, or 0.7% at 2,699. The Nasdaq Composite Index COMP, +1.51% meanwhile, rose 91 points, or 1.3% to 7,217.

What’s driving the market?

The Federal Reserve said it would be ‘patient’ with interest rates at the conclusion of its two-day gathering on Wednesday, implying that it may be at the end of its rate-hike campaign. The central bank further surprised investors by issuing a separate statement regarding its $4 trillion balance sheet, indicating an unwind of that asset portfolio could end sooner than expected. The central bank cited market turbulence as one key consideration for its softer tone on policy.

Taken together the dynamic points to a more accommodative posture, at least for the moment, from Fed Chairman Jerome Powell and his fellow policymakers. That tone should encourage investment in risk assets, if it doesn’t raise fears that other unforeseen factors, including a sluggish global economy, are beginning to spook policymakers.

Thursday’s trade comes a day ahead of the nonfarm-payrolls report, due Friday, which could give market observers more clues on the health of the job market — a consistent source of strength during this run-up in equities.

Meanwhile, the release of corporate quarterly results continue apace, with some three dozen S&P 500 components set to deliver earnings reports in the busiest day of the busiest week of earnings season.

In trade, market observers were watching developments between the U.S. and China as officials there attempted to forge the framework toward a resolution of tariff disputes, in the final day of this recent round negotiations. President Donald Trump tweeted on Thursday that no final deal would be made “until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long-standing and more difficult points.”

What are strategists saying?

“We had a big up day yesterday, and now we’re seeing markets digest that today,” Mark Travis, chief executive of Intrepid Capital, told MarketWatch.

The key driver is a surprisingly dovish Fed statement, which put the finishing touches on a three-month about-face yesterday, from being worried about rising domestic inflation to concerned about slowing global growth sinking the U.S. economy.

“Early on I thought Powell had more conviction and was going to give us steady doses of a smaller balance sheet and fed funds increases, but that’s all gone out the window,” Travis said.

“Fed Chairman Jerome Powell gave investors a belated Christmas gift today with a dovish tone on the trajectory of interest rates and plans for flexibility with regards to the balance sheet runoff,” wrote Lindsey Bell, investment strategist at CFRA Investment Strategist, in a Thursday note.

“Powell admitted that financial conditions tightened in Q4 and acknowledged global economic growth concerns warrant consideration in monetary policy,” she said.

Which stocks are in focus

Facebook IncFB, +12.96% shares were up 13% early Thursday, after the company issued a Wednesday-evening earnings report that showed record profit, while the company added 1 million daily users in U.S. and Canada.

Shares of General Electric Co. GE, +15.38% rallied 14.5%, after the industrial conglomerate reported a fourth-quarter profit that missed expectations, but revenue and cash flow that beat. If the stock can hold its gain, it would represent its best single-day performance in nearly a decade, according to Dow Jones Market Data.

Shares of PayPal Holdings IncPYPL, -4.54% were down 3.7%, after the payments company issued a downbeat outlook for the current quarter.

DowDuPont IncDWDP, -7.77% said sales were flat in its latest quarter as lower customer demand for its appliances and automotive products as well as the drop in oil prices weighed on the manufacturer’s top line. Shares fell 7.7% Thursday, helping weigh on the Dow.

Shares of United Parcel Service UPS, +5.28% were up 6% Thursday, after the logistics company posted above-consensus earnings before the market open.

Altria Group IncMO, +1.32% stock is in focus Thursday, after the firm matched consensus estimates for fourth-quarter profit and revenue. The stock was up 1.9%.

Northrop Grumman CorpNOC, +0.45% shares fell 1.2%, after the defense contractor reported fourth-quarter earnings that beat expectations but provided a downbeat outlook.

Charter Communications, IncCHTR, +14.39% stock rose 14.8%, after the broadband-and-cable operator posted stronger-than-expected revenue for the fourth quarter.

Shares of ConocoPhillips COP, +2.82% were in focus Thursday, after the energy firm reported fourth-quarter earnings that surpassed Wall Street expectations. The stock is up 3.8% early Thursday after falling 6% over the past three months.

Shares of Raytheon CoRTN, -2.56% were down 2.5% Thursday, after the firm’s fourth-quarter revenue fell short of consensus expectations.

Sprint CorpS, +1.82% stock was off 0.2%, after the communications firm posted third-quarter fiscal revenue above analyst expectations, but reported that the company lost money in the quarter.

Looking ahead, investors are awaiting reports from Inc.AMZN, +3.01% , Symantec Corp. SYMC, +0.38% and Aflac Inc. AFL, +1.08%which all report after the bell Thursday.

Meanwhile, Blackstone Group L.P. BX, +1.95% said Thursday its Blackstone Infrastructure Partners unit has agreed to acquire a majority stake in Tallgrass Energy for about $3.3 billion in cash.

Which data are in focus?

The number of Americans submitting new applications for unemployment benefits rose by 53,000 to 253,000 during the final week of January, the Labor Department reported Thursday. That’s well above consensus expectations of 216,000, per a MarketWatch poll of economists, though the spike was likely due in part to seasonal factors that will fade.

Wage growth accelerated in the fourth quarter of 2018, with compensation costs rising 2.9% year-over-year, the fastest pace in 11 years, the Labor Department said Thursday.

The Chicago purchasing managers index for January came in at 56.7, down from 65.4 in December.

New home sales in November rose to a seasonally adjusted annual rate of 657,000, up from 562,000 in October, above economists expectations of 563,000 new homes, per a MarketWatch poll.

How did U.S. stocks trade yesterday?

On Wednesday, the Dow rose 434.90 points, or 1.8%, to end at 25,014.86, pulling back from a high 25,109.10. The S&P 500 index advanced 41.05 points, or 1.6%, to 2,681.05 and the Nasdaq Composite Index climbed 154.79 points, or 2.2%, to 7,183.08.

All three benchmarks closed at their highest levels since at least Dec. 6, according to Dow Jones Market Data.

How are other markets trading?

Asian stocks closed Thursday mostly higher, with Japan’s Nikkei 225 index rising 1.6%, and the Shanghai Composite Index closing the day 0.4% higher.

In Europe, stocks were trading mixed, with the Stoxx Europe 600 SXXP, +0.04%down 0.3%, while the FTSE 100 UKX, +0.39% was advancing 0.4%.

Crude oil CLH9, +1.66% prices were edging higher, while gold pricesGCH9, +0.75% were rallying more than 1%, and the U.S. dollar DXY, +0.11%ticked higher, relative to its trading partners.

The SPDR Dow Jones Industrial Average ETF (DIA) was trading at $249.51 per share on Thursday morning, down $0.67 (-0.27%). Year-to-date, DIA has gained 1.70%, versus a 1.41% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 82 ETFs in the Large Cap Value ETFs category.

This article is brought to you courtesy of MarketWatch.

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