Benchmarks closed mixed on Wednesday after minutes from the Federal Open Market Committee’s (FOMC) April’s policy meeting indicated a rate hike was likely in June. Stocks from sectors like utilities and telecom that are likely to be affected by a rate hike declined. However, increasing rate hike possibilities led financials stocks higher.
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The Dow Jones Industrial Average (DJI) decreased 3.36 points, to close at 17,526.62. However, the S&P 500 rose 0.42 points to close at 2,047.63. The tech-laden Nasdaq Composite Index closed at 4,739.12, gaining 0.5%. The fear-gauge CBOE Volatility Index (VIX) increased 2.4% to settle at 15.95. A total of around 8 billion shares were traded on Wednesday, more than the last 20-session average of 7.3 billion shares. Decliners outpaced advancing stocks on the NYSE. For 64% stocks that declined, 33% advanced.
The minutes of Federal Reserve’s April two-day policy meeting indicated that most of the Fed officials were optimist for a rate hike in Fed’s June meeting. The minutes said that “most participants judged that if incoming data were consistent with economic growth picking up in the second quarter” then the Fed may opt for a hike next month. It also said that if “labor market conditions” continue “to strengthen” and inflation makes “progress toward the 2% objective”, then it might “be appropriate for” the Fed “to increase the target range for the federal funds rate in June.”
Rate sensitive sectors like utilities and telecom slumped following rate hike possibility. The Utilities Select Sector SPDR (XLU) lost 1.9% and was one of the biggest losers among the S&P 500 sectors. Key utilities stocks including PPL Corporation (PPL – Analyst Report), NextEra Energy, Inc. (NEE – Analyst Report), Duke Energy Corporation ( (DUK – Analyst Report), Southern Company (SO – Analyst Report), American Electric Power Co., Inc. (AEP – Analyst Report), Dominion Resources, Inc. (D – Analyst Report) and Entergy Corporation (ETR – Analyst Report) declined 2.1%, 1.5%, 3.7%, 2.1%, 1.9%, 2.1% and 3.2%, respectively.
Further, the telecom services sector within the S&P 500 lost 1.4%. Some of its key holdings including AT&T, Inc. ( (T – Analyst Report), CenturyLink, Inc. (CTL – Analyst Report), Frontier Communications Corporation (FTR – Analyst Report) and Verizon Communications Inc. (VZ – Analyst Report) fell 1.7%, 2.1%, 2.3% and 1%, respectively.
Meanwhile, the Financial Services Select Sector SPDR (XLFS) advanced 2.4%, emerging as the highest advancer in the S&P 500 sectors. Top holdings from the sector such as Bank of America Corporation (BAC – Analyst Report), Wells Fargo & Company (WFC), Citigroup Inc. (C) and Berkshire Hathaway Inc. (BRK.B) rose 4.9%, 2.2%, 5% and 0.8%, respectively. Dow components JPMorgan Chase & Co ( JPM) and Goldman Sachs Group, Inc. (GS) increased 3.9% and 3.4%, respectively.
The Financial Select Sector SPDR (XLF) advanced 1.8%, emerging as the second best performer in the S&P 500 sectors. Also, both the SPDR S&P Regional Banking ETF (KRE) and SPDR S&P Bank ETF (KBE) increased 4.2%, posting their best percentage gains since Feb 12 and March 1, respectively.
In earnings news, Target Corp’s (TGT) shares slumped 7.6%, registering its biggest one day percentage fall since Dec 1, 2008 following lower-than-expected revenues and weak outlook. Although, Target’s fiscal first quarter adjusted earnings of $1.29 per share came higher than the Zacks Consensus Estimate of $1.20, its quarterly revenues of $16,196 million missed the Zacks Consensus Estimate of $16,309 million.
Moreover, Target now projects adjusted earnings in the band of $1.00 to $1.20 per share for the fiscal second quarter. As compared to which, the current Zacks Consensus Estimate for the ongoing quarter is pegged at $1.38. Losses in Target led the SPDR S&P Retail ETF (XRT) to fall 1.3%.
Separately, oil prices decreased following a stronger dollar, with the U.S. Dollar index (DXY) rising 0.1% to 87.56 after FOMC minutes raised rate hike possibilities. Moreover, the U.S. Energy Information Administration (EIA) reported that the U.S. commercial crude oil inventories increased 1.3 million barrels to 541.3 million last week. WTI crude and Brent crude fell 0.3% and 0.7% to $48.19 per barrel and $48.93 a barrel, respectively.