Stocks declined on Wednesday afternoon, as Fed Chair Janet Yellen explained that the federal funds rate would not remain near zero forever.
After holding near the breakeven level throughout Wednesday’s trading session, stocks began to decline after the 2:00 release of the FOMC Statement at the conclusion to the Federal Open Market Committee’s monetary policy meeting. At her first press conference as newly-appointed Fed Chair, Janet Yellen exploded the myth that she would be a “dovish” leader of the central bank, as she explained that the Fed could begin to raise the federal funds rate from its current 0 – 0.25 percent range approximately 6 months after the Fed’s bond-buying program ends in the fall.
Despite the fact that New York Fed Chair Bill Dudley indicated on March 7 that increases to the federal funds rate would likely begin at some point in mid-2015, investors seemed shocked to hear a similar statement from Dr. Yellen, as a stock selloff immediately ensued.
The Dow Jones Industrial Average (DIA) lost 114 points to finish Wednesday’s trading session at 16,222 for a 0.70 percent decline. The S&P 500 (SPY) fell 0.61 percent to 1,860.
The Nasdaq 100 (QQQ) declined 0.64 percent to finish at 3,682. The Russell 2000 (IWM) dropped 0.78 percent to 1,195.
In other major markets, oil (USO) advanced 0.37 percent to close at $35.71.
On London’s ICE Futures Europe Exchange, May futures for Brent crude oil declined 95 cents (0.89 percent) to $105.84/bbl. (BNO).
April gold futures declined $28.60 (2.10 percent) to $1,330.40 per ounce (GLD).
The transportation sector lost altitude during Wednesday’s trading session, as the Dow Jones Transportation Average fell 0.43 percent to 7,549 (IYT).
In Japan, the exchange rate for the yen remained the dominant factor in stock market activity. Japanese stocks advanced as the yen weakened slightly to 101.60 per dollar during the last hour of Wednesday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average rose 0.36 percent to 14,462 (EWJ).
In China stocks declined modestly following widespread news reports that one of the nation’s real estate developers, Zhejiang Xingrun Properties, approached bankruptcy after its first corporate bond default early in the month. The news served as a reminder of last week’s remark by Premier Li Keqiang, that more corporate bond defaults can be expected. The Shanghai Composite Index declined 0.17 percent to 2,021 after rebounding from 2,006 during the last two hours of trading (FXI). The Shanghai Composite’s chart remains haunted by a bearish, head-and-shoulders pattern. Hong Kong’s Hang Seng Index dipped 0.07 percent to 21,568 (EWH).
European stocks advanced modestly on Wednesday after Eurostat reported that production in construction for the Eurozone increased by 1.5 percent between December of 2013 and January of 2014. On a year-over-year basis, construction increased by 8.8 percent in the Eurozone and by 7.3 percent in the greater. 28-nation European Union. The Euro STOXX 50 Index finished Wednesday’s session with a 0.08 percent surge to 3,076 – which was not enough to reach its 50-day moving average of 3,087, although it briefly broke above that level to reach a high of 3,089. Its Relative Strength Index rose from 48.29 to 48.71 (FEZ).
Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,830 on Wednesday, after a 0.61 percent decline to 1,860. Its Relative Strength Index (RSI) fell from 59.62 to 54.62. The MACD turned downward from the signal line, suggesting that the S&P could continue its decline during the immediate future.
On Wednesday, all sectors were solidly in negative territory. The utilities sector took the hardest hit, falling 1.58 percent.
Consumer Discretionary (XLY): -0.66%
Technology: (XLK): -0.41%
Industrials (XLI): -1.03%
Materials: (XLB): -0.88%
Energy (XLE): -0.75%
Financials: (XLF): -0.05%
Utilities (XLU): -1.58%
Health Care: (XLV): -0.30%
Consumer Staples (XLP): -0.77%
Bottom line: After spending most of Wednesday’s trading session near the breakeven level, the major stock indices began to decline immediately after the 2:00 release of the latest FOMC Statement. The decline became more significant during Janet Yellen’s press conference, when she indicated that the federal funds rate would be increased from its 0 – 0.25 percent range approximately six months after the Fed’s bond-buying program ends in the fall.
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