All major stock indices fell on Wednesday following the release of the Federal Open Market Committee meeting report. The opinion, detailed below in our economy section, was more hawkish than the market expected on the risk of inflation and the need for interest rate increases sooner than predicted. Housing data that was weaker than expected and import prices that rose more than expected also had a negative impact. Stock prices in the major indexes in Asia are mostly down and US stock futures for Thursday are also negative. Bond yields increased, with the 10 year treasury note closing at 1.561, up from last week’s low of 1.427.
The major news today was from the FOMC which reported that indicators of economic activity and employment have improved because of the speed and success of COVID vaccinations and fiscal policies carried out by the government. This resulted in the Fed increasing its estimate of GDP growth in 2021 to 7% from the 6.5% predicted in March, but also an increase the estimated PCE to 3% from 2.5% in March. With respect to the interest rates, 13/18 members of the committee predicted a rate increase in 2023, compared with 7 members in March. The most likely increase is thought to be two increases and reach 0.6% by the end of 2023. However, 7 members predicted a rate increase in 2022 compared with 4 members in the March meeting. The Fed did state that there was no plan to reduce asset purchases, currently 120 billion a month, until there had been further progress in reducing unemployment and stronger evidence of higher inflation. The dollar strengthened on the news of interest rate increases in the future. Oil prices dropped as they are priced in US dollars, although this drop was minimized by the belief that increased travel as restrictions ease would increase oil demand.
Housing starts rose in May by 3.6% to an adjusted 1,572,000 units, below the expected 1,630,000. The figure is still 50.3% higher than May 2020. Construction was limited by high lumber prices and shortage of some building materials. Lumber prices have started to drop but remain 154% higher than one year ago. Building permits, a proxy for future construction, fell 30% in May to a seven month low.
The import price index rose 11.3% year over year and above the expected 10.9%, This is the fastest rate of increase in nine years.
The SP 500 dropped by 0.54% to close at 4223.70. The index has been up 0.10% over five days, up 2.62% over one month, up 6.28% over three months and up 35.66% over one year.
The trailing P/E is 37.39 compared with 26.28 one year ago and estimated future P/E 22.47. Dividend yield is currently 1.36 compared with 2.00 one year ago.
Leading stocks were OXY up 4.93%, ENPH up 4.90%, CNC up 3.83%, SIVB up 3.06% and NCLH up 2.69%.
Trailing stocks were WLTW down 7.16%, ORCL down 5.59%, TTWO down 3.89%, OGN down 3.49% and SNAP down 3.22%.
The Dow Jones industrial Average was down 0.77% to close at 34033.67. The DOW is down 1.20% over five days, up 0.41% over one month, up 3.08% over three months and up 30.30% over one year.
The trailing P/E is 29.25 compared with 22.20 year ago and an estimated future P/E of 20.27. The current dividend yield is 1.82% compared with 2.46 one year ago.
Leading stocks were MRK up 1.20%, JPM up 0.70%, APPL up 0.39%, NKE up 0.08% and JNJ down 0.04%.
Trailing stocks were DOW down 2.42%, WMT down 1.49%, MMM down 1.84%, BA down 1.73% and WBA down 1.71%.
The NASDAQ composite is down 0.24% and closed at 14039.68. NASDAQ has been up 0.92% over five days, up 5.56% over one month, up 3.80% over 3 months and up 41.66% over one year.
Leading stocks were VINO up 66.26%, ORPH up 61.29%, KIN up 45.58%, AVXL up 21.45% and UTime Ltd up 20.41%
Trailing stocks were RSLS down 31.15%, IKT down 27.14%, JFU down 15.21%, FSUN down 14.00% and UXIN down 12.64%.
The MidCap SP400 dropped 0.66% to close at 2706.22. The SP400 has been down 0.96% for the past 5 days, up 1.25% for the past month, up 1.58% for the past 3 months and up 50.48% over the past year.
Leading stocks were RUN up 10.56%, SBNY up 6.72% and FHI up 4.73%.
Trailing stocks were HRB down 6.49%, CONE down 6.43% and TR down 5.67%
The SmallCap SP600 was down 0.06% to close at 1389.57. The SP600 has dropped 0.88% for the past 5 days, up 4.20% for the past month, up 0.59% for the past 3 months and up 66.98% over the past year.
Leading stocks were GEO up 10.27%, RDNT up 8.70% and RMBS up 8.24%.
Trailing stocks were LZB down 11.68%, OI down 5.28% and SNBR down 4.76%.
The CBOE VIX rose 6.64% and closed at 18.15. The VIX is up 1.45% over five days, down 18.17% over one month, down 5.62% over three months and down 45.77% over one year.
On the New York stock exchange 1308 stocks advanced and 2009 declined, while on Nasdaq 1964 advanced and 2304 declined.
There were 185 new 52 week highs and 21 new 52 week lows on NYSE with 131 new highs and 35 new lows on NASDAQ.
The 2 year Treasury note yield is 0.21% and 10 year is 1.56%. The 10 year yield was up 5.00% over five days, down 6.52% over one month, down 4.82% three months ago, and up 113.39% one year ago.
SP500 Sector Performance % change
Consumer Discretionary + 0.16
Financials - 0.14
Health Care - 0.38
Energy - 0.48
Information Technology - 0.52
Communication Services - 0.77
Real Estate - 0.88
Industrials - 0.99
Materials - 1.17
Consumer Staples - 1.24
Utilities - 1.49
Consumer Discretionary has been up 0.97% over five days, up 3.02% over one month, up 2.44% over three months and up 32.40% over one year.
Real Estate has been down 0.09% over five days, up 0.05% over one month, up 5.17% over three months and up 10.81% over one year.