US Stocks turn positive on Fed Remarks; Dow briefly adds 100 Points

U.S. stocks reversed to trade higher Wednesday as investors digested signals on the timing of an interest rate hike from the Federal Reserve statement.

The US central bank dropped the word “patient” from its post-meeting statement, an indication, subtle though it may be, that the era of zero interest rates is about to end.

The Dow Jones industrial average briefly rose as much as 100 points following the release of the statement.

In the minutes before the Fed news, the Dow Jones industrial average fell about 150 points, losing its gains for the year. The index had nine triple-digit closes in the last two weeks, four up and five down.

The Federal Open Market Committee was scheduled to conclude its two-day meeting on Wednesday. The highly anticipated statement is expected at 2 p.m. ET, with a press conference by Fed Chair Janet Yellen at 2:30 p.m.

“I truly believe the message is going to be that ‘patient’ isn’t in the statement so that gives us some optionality over the net few months,” said Art Hogan, chief market strategist at Wunderlich Securities. “We typically get a knee-jerk reaction. More times than not the first reaction is wrong.”

He expects an initial negative reaction before the implications of the Fed statement are fully digested and markets close higher.

“Any overreaction should be reversed very quickly,” said Doug Cote, chief market strategist at Voya Investment Management. He expects the Fed to remove “patient” from its statement but lower its rate forecast by 25 basis points, following a similar decrease in December.

“They’re going to signal to markets the path of rate increase is going to be slower,” Cote said.

Several analysts said changing the Fed statement wording would not be fundamentally significant for the stock market.

“I won’t pay much attention to whether “patient” is retained or not in the FOMC statement because it really won’t matter in the medium term,” Krishna Memani, chief investment officer at Oppenheimer Funds, said in a note.

Doug Foreman, chief investment officer at Kayne Anderson Rudnick Investment Management, said the Fed announcement is “not going to have an impact on markets because it’s had a year to price that in.”

“Traders are trying to position themselves for this eventual rate increase,” he said. “I’m not going to buy or sell anything different today.”

Investors will also watch to see if the stronger U.S. dollar figures into the Fed statement . The dollar continued to hold at highs, while the euro traded flat at $1.06.

Oil initially extended losses following the U.S. Energy Information Administration report that oil inventories rose 9.6 million barrels. Crude traded above $42 a barrel and Brent crept above $54 a barrel in early afternoon trade.

“In the near term it’s easy to read (strong dollar, low oil) as a negative,” said Maris Ogg, president of Tower Bridge Advisors. “I think we’re going to waffle around until we see some uncertainty resolve.”

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, edged higher near 16.

In more housing news, weekly mortgage applications fell 3.9 percent despite the drop in interest rates, the Mortgage Bankers Association reported.

The U.S. 10-year Treasury yield traded near 2.04 percent. The 2-year note yield was 0.68 percent.

Starbucks announced a 2-for-1 stock split, with shareholders as of March 30 to get one additional share for each one they have. The change is the first split since October 2005 and the sixth one overall.

FedEx posted earnings that beat on revenue that was slightly below estimates. The company’s full-year guidance was also slightly lower than expected, but its commentary was generally upbeat and analysts have pointed out that FedEx guidance tends to be on the conservative side.

General Mills reported adjusted quarterly profit of 70 cents per share, 3 cents above estimates, with revenue also beating Street consensus. The cereal maker and food producer said it expects to continue “strong growth” during the current quarter.

Williams-Sonoma, Guess and Cintas are all due to report after the bell.

Alibaba’s share lock-up expires on Wednesday, allowing the Chinese e-commerce and web conglomerate to sell up to 437 million of its shares.

Apple is scheduled to replace AT&T in the Dow Jones industrial average on Wednesday after the bell, as Visa implements a 4-for-1 stock split.

American Airlines will replace Allergan in the S&P 500 after the close of trading on March 20. Allergan is in the process of being purchased by Actavis.

Last week, Skyworks Solutions replaced PetSmart in the index on BC Partner’s acquisition of the pet supplies retailer.

In Europe, stocks closed mixed as investors awaited the outcome of the Fed’s meeting. The FTSE rallied on an increased economic growth forecast of 2.3 percent for the United Kingdom, as finance minister George Osborne also signaled plans to scale back austerity measures—just in time for May’s national election.

In the software market:

Oracle—The business software maker reported in-line quarterly profit of an adjusted 68 cents per share, although revenue fell below Street estimates. Oracle also raised its quarterly dividend by 25 percent to 15 cents per share.

Adobe Systems—The software firm reported an adjusted quarterly profit of 44 cents per share, beating estimates by 5 cents, while revenue was slightly above forecasts. Adobe did see a less-than-expected increase in subscribers to its Adobe Cloud service, although that was still 28 percent above a year ago.

Microsoft—A blog post by Microsoft EVP Terry Myerson said Windows 10 will be available to consumers “this summer.”

The Dow Jones Industrial Average traded down 109 points, or 0.62 percent, at 17,739, with United Technologies the greatest laggard and Caterpillar leading advancers.

The S&P 500 traded down 9 points, or 0.44 percent, at 2,065, with consumer staples leading eight sectors lower and energy leading advancers.

The Nasdaq traded down 19 points, or 0.39 percent, at 4,918.

Decliners were a step ahead of advancers on the New York Stock Exchange, with an exchange volume of 313 million and a composite volume of 1.7 billion in early afternoon trade.

Crude oil futures fell 93 cents to $42.52 a barrel on the New York Mercantile Exchange. Gold futures rose $4.00, or 0.35, to $1,152.20 an ounce as of 1:25 p.m.

U.S. stocks closed mostly lower on Tuesday as investors focused on the outcome of the Fed meeting. The Dow was off triple digits and only the Nasdaq was in the black.

As of Tuesday’s close:

• The Dow Jones industrial average was within half a standard deviation above its 50-day moving average. Since 1981 the index has been in this position 4.66 percent of all trading days, according to quantitative analytics tool Kensho. The probability of the index moving lower is 46.6 percent and the probability of it moving higher in the days following is 53.4 percent.
• The S&P 500 was within half a standard deviation above its 50-day moving average. Since 1980 the index has been in this position 5.23 percent of all trading days, according to Kensho. The probability of the index moving higher in the days following is 51.3 percent and the probability of it moving lower is 48.7 percent.
• The Nasdaq composite was within 1.5 standard deviations above its 50-day moving average. Since 1980 the index has been in this position 7.41 percent of all trading days, according to Kensho. The probability of the index moving lower is 61.9 percent and the probability of it moving higher is 38.1 percent.

Source: CNBC