Federal Reserve Chair Jerome Powell gave investors reason for pause on Wednesday afternoon in a modestly lower day for stocks.
The Fed itself, following its latest two-day policy meeting, announced it would keep its benchmark rate near zero, stating that "indicators of economic activity and employment have strengthened" amid policy support and progress on COVID vaccinations.
"With no meaningful change to monetary policy or communication, this meeting was simply a message to market participants to sit back and observe as the economic recovery continues to unfold," says Charlie Ripley, senior investment strategist for Allianz Investment Management.
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But Powell managed to get traders to zigzag a bit in his ensuing press conference.
Investors cheered after he said it could be "some time" before the economy hits its targets, and that the Fed is "not thinking about thinking about tapering" (emphasis ours). But those quick gains reversed after Powell dropped an F-bomb – "froth" – when describing U.S. equity markets.
All the major indices lost ground by the closing bell. The Dow Jones Industrial Average dropped 0.5% to 33,820, weighed down by Amgen (AMGN, -7.2%) and Boeing (BA, -2.9%), which both reeled in the wake of disappointing earnings reports. The S&P 500 (off marginally to 4,183) and Nasdaq Composite (-0.3% to 14,051) also finished in the red.
Other action in the stock market today:
- Visa (V, +1.6%) was one of the Dow's best performers. The payments giant reported stronger-than-expected fiscal second-quarter earnings and revenue, and said payments volume jumped 11% over the three-month period.
- F5 Networks (FFIV, -9.1%) took a notable dive after the tech name last night reported earnings. For its fiscal second quarter, FFIV beat on both the top and bottom line, but the company's guidance for the current quarter came in below estimates.
- The small-cap Russell 2000 actually finished in the black, gaining 0.1% to 2,304.
- U.S. crude oil futures jumped 1.5% to settle at $63.86 per barrel. Boosting prices to their highest finish in six weeks was data that showed a smaller-than-anticipated weekly rise in domestic crude inventories and a commitment from OPEC+ to continue easing back on oil production.
- Gold futures slipped 0.3% to $1,773 an ounce.
- The CBOE Volatility Index (VIX) declined 1.2% to 17.35.
- Bitcoin prices improved by 1.2% to $55,470. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
Run, Economy, Run!
Powell might keep Wall Street guessing, but economic improvement seems a settled matter.
In addition to the Fed's nod of confidence, Barclays economists on Wednesday upwardly revised their official Q1 GDP growth forecasts by half a percentage point to 5.5% – aligning it with Kiplinger economists' expectations.
"At the time of our previous Q1 GDP forecast revision (see US GDP Tracking , April 16, 2021), we were still missing some key source data for private inventory investment and international trade," say Barclays economists. "We had viewed risks to those forecasts as being to the downside and refrained from fully reconciling our official forecast with the tracking estimates until these components were informed by hard data.
"With the March estimates in hand, we now fully reconcile our official forecast with the tracking estimate."
Largely speaking, this continues to augur well for the prospects of so-called "recovery stocks," barring any exogenic shocks. Yes, that's bound to be a boon for restaurants, airlines, cruise lines and other consumer-facing businesses. But if it powers a vehicle or helps get something built, chances are its fortunes could continue to improve, too.
Take these five commodity picks, for instance, that include a wide range of mining and even forestry opportunities.
Oil stocks should be on the menu, too. U.S. crude oil has shot up by more than 30% year-to-date, translating to much more profitable operations for a host of energy plays that have spent years slimming down operations amid far leaner prices. These seven plays in particular have managed to attract a horde of bullish calls of late.
Disclaimer
Kyle Woodley was long BA as of this writing.
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