At 2:30 p.m. New York time, about the time the Federal Reserve issued its press statement on today’s meeting of the Fed’s interest rate setting body the Open Market Committee and about the time when Fed chair Jerome Powell issued his comments on the meeting, stocks were up. The Standard & Poor’s 500 was ahead 0.63% and the Dow Jones Industrial Average had gained 1.11%. Tech stocks were struggling with the NASDAQ Composite off 0.09% but overseas equities were moving ahead with the iShares MSCI Emerging Markets ETF up 0.44%. The Russell 2000 small cap index had pushed higher by 2.07%.
The market had, at that point clearly heard something it liked from the Fed. Powell gave the central bank’s first take on interest rates in 2023, saying that the Fed would keep interest rates low through that year–at least. And the Fed also got decidedly more optimistic on the economy. In their dot-plot Federal Reserve officials predicted that unemployment will fall to 7.6 percent by the end of 2020, and to 5.5% by the end of 2021. By 2023 the Fed’s projections put unemployment back at 4%, pretty much where it had been before the coronavirus recession. “The recovery has progressed more quickly than generally expected. Even so, overall activity remains well below, and the path ahead remains highly uncertain,” Powell said at this afternoon’s news conference.
By the close, though, the market was having second thoughts. The S&P 500 had moved from its 2:30 p.m. gain to a loss of 0.13% at the close. The Dow gave back almost all of that 1.11% increase to close up just 0.13%. The NASDAQ Composite moved heavily into the red with a drop of 1.25% as trading finished. The NASDAQ 100, driven by the biggest caps in technology, ended the day with a 1.67% loss. Even the emerging markets ETF moved into the red with an end of day drop of 0.16%. (The Russell 2000 hung unto about half its gain with a close up 1.20%.)
A look at the Technology Select Sector SPDR ETF (XLK) showed the extent of the damage. The ETF closed down 1.55% on the day.
Shares of Apple (AAPL) were down 2.95% at the close. Amazon (AMZN) lost 2.47%. Microsoft (MSFT) dropped 1.79%. Alphabet (GOOG) declined 1.33%. Facebook (FB) was off by 2.50%. Nvidia (NVDS) fell 3.67%. Netflix (NFLX) gave up 2.45%.
At the close today this looked like another attempt at a sector rotation. If short-term interest rates are going to stay near 0% though 2023 and the economy is looking at a stronger than expected rebound, then maybe technology companies won’t have a monopoly on revenue and earnings growth and the nosebleed prices in the sector aren’t justified.
Today such “recovery dependent stocks” as American Airlines (AAL)–up 5.02% on the day–Carnival (CCL)–up 3.20%–General Motors (GM)–up 0.70%–and Six Flags (SIX)–up 3.38%–were all solidly higher. The Financial Select Sector SPDR ETF (XLF) gained 1.13% on the day. Wells Fargo (WFC), my favorite indicator bank for the status of the real economy since its revenue and earnings are more aligned with the trends in mortgages and consumer credit than competitors with big trading desks, ended the day up 3.30%.
We’ve had attempts at sector rotation repeatedly over the last six weeks or so. None have stuck. This time?
