The S&P 500 slipped 0.3% on Thursday on the heels of the Federal Open Market Committee's (FOMC) decision to leave the fed funds rate unchanged as expected. The benchmark index traded slightly below its flat line leading up to the Committee's statement release, and sharply dropped to session lows before recouping some losses.
Meanwhile, the Dow Jones Industrial Average was unchanged, the Nasdaq Composite lost 0.5%, and the Russell 2000 lost 0.3%.
In its statement, the FOMC said it expects further gradual rate hikes that are consistent with sustained economic growth, strong labor market conditions, and inflation near its symmetric 2% target over the medium term. The one hitch, if it can be called that, is that the FOMC statement acknowledged business fixed investment has moderated.
The Fed's statement didn't derail expectations for another rate hike in December, which would be the fourth hike in 2018, with the CME FedWatch Tool putting the chances at 77.8%, down slightly from 80.8% on Wednesday.
Consequently, the yield on the Fed-sensitive 2-yr Treasury note jumped four basis points to 2.97% -- its highest level since June 2008. Also, the benchmark 10-yr yield added two basis points to 3.23%, and the U.S. Dollar Index rose 0.7% to 96.68.
Back to the stock market, over half of the 11 S&P sectors finished with losses on Thursday, possibly manifesting Wednesday's post-midterm spike as an overreaction.
The energy sector (-2.2%) led the retreat and is now the second worst-performing group this quarter. The oil-sensitive group has fallen in tandem with WTI crude, which dropped another 2.4% on Thursday to $60.68/bbl, further distancing itself from the four-year high it hit in October.
Communication services was the next worst-performing group with a loss of 0.9%. High-growth names like Facebook (FB 147.87, -3.66, -2.4%), Alphabet (GOOG 1082.40, -10.99, -1.0%), and Netflix (NFLX 317.92, -9.58, -2.9%) led the sector lower.
Conversely, the rate-sensitive, and heavily-weighted, financials sector had a relatively strong performance with a gain of 0.3%. The gain was a continuation of the relative strength financials have recently had, part of it coming from the renewed rise in Treasury yields.
In the latest batch of Q3 earnings reports, lower guidance overshadowed better-than-expected profits for many names. For instance, Perrigo (PRGO 62.88, -12.26, -16.3%), Qualcomm (QCOM 58.05, -5.16, -8.2%), Wynn Resorts (WYNN 99.02, -14.97, -13.1%), Square (SQ 75.23, -7.46, -9.0%), and D.R. Horton (DHI 34.22, -3.37, -9.0%) all beat earnings estimates but bared significant losses after lowering profit or revenue guidance below consensus.
Reviewing Thursday's economic data, which included the weekly Initial and Continuing Claims report:
- Initial claims for the week ending November 3 decreased by 1,000 to 214,000 (Briefing.com consensus 213,000) while continuing claims for the week ending October 27 decreased by 8,000 to 1.623 million.
- The key takeaway from the report is that it is supportive of the Federal Reserve's rate-hike bias.
Looking ahead, investors will receive the Producer Price Index for October, the preliminary reading of the University of Michigan Consumer Sentiment Index for November, and the Wholesale Inventories report for September on Friday.
Nasdaq Composite +9.1% YTD
Dow Jones Industrial Average +6.0% YTD
S&P 500 +5.0% YTD
Russell 2000 +2.8% YTD