Fed Minutes Contribute To Late-Day Pullback On Wall Street - U.S. Commentary

(RTTNews) - After seeing strength for much of the trading session, stocks came under pressure in afternoon trading on Wednesday. The major averages slid into negative territory, with the tech-heavy Nasdaq pulling back off a new record intraday high.

The major averages ended the session just off their worst levels of the day. The Dow edged down 41.09 points or 0.2 percent to 20,648.15, the Nasdaq fell 34.13 points or 0.6 percent to 5,864.48 and the S&P 500 dipped 7.21 points or 0.3 percent to 2,352.95.

The pullback by stocks came following the release of the minutes of the Federal Reserve's latest monetary policy meeting, which revealed the central bank is ready to start shrinking their $4.5 trillion balance sheet this year.

Participants agreed that reductions in the Fed's securities holdings should be gradual and predictable and accomplished primarily by phasing out reinvestments of principal received from those holdings.

The minutes said policy makers discussed the potential benefits and costs of phasing out the reinvestments or ending them all at once.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "One or two Fed officials have indicated that they would like to begin the balance sheet normalization after a further two rate hikes."

"Consequently, the December FOMC meeting is probably the most likely date to introduce this change," he added. "It's possible that the Fed could temporarily pause its series of rate hikes this year at that December meeting because of the balance sheet policy change."

Earlier in the day, stocks moved mostly higher following the release of a report from payroll processor ADP showing much stronger than expected private sector job growth in the month of March.

ADP said private sector employment soared by 263,000 jobs in March compared to economist estimates for an increase of about 187,000 jobs.

However, the report also said the jump in employment in February was downwardly revised to 245,000 jobs from the previously reported 298,000 jobs.

"Job growth is off to a strong start in 2017," said Mark Zandi, chief economist of Moody's Analytics. "The gains are broad based but most notable in the goods producing side of the economy including construction, manufacturing and mining."

The release of the report from ADP comes two days before the release of the Labor Department's more closely watched monthly jobs report, which includes both public and private sector jobs.

The Labor Department report is expected to show an increase of about 180,000 jobs in March, while the unemployment rate is expected to hold at 4.7 percent.

Meanwhile, a separate report from the Institute for Supply Management showed that service sector growth slowed by more than expected in March.

The ISM said its non-manufacturing index dropped to 55.2 in March from 57.6 in February, although a reading above 50 indicates continued growth in the service sector. Economists had expected the index to edge down to 57.0.

The bigger than expected pullback by the index came after it reached its highest level since October of 2015 in the previous month.

Sector News

Steel stocks moved sharply lower over the course of the trading session, dragging the NYSE Arca Steel Index down by 2.6 percent. With the drop, the index fell to its lowest closing level in almost three months.

Brazil's CSN (SID), AK Steel (AKS), and Cliffs Natural Resources (CLF) turned in some of the steel sector's worst performances on the day.

Considerable weakness also emerged among biotechnology stocks, as reflected by the 2 percent loss posted by the NYSE Arca Biotechnology Index. The index slid to its lowest closing level in over a month.

Brokerage, networking, and natural gas stocks also moved notably lower as the day progressed, contributing to the pullback by the broader markets.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index rose by 0.3 percent, while Hong Kong's Hang Seng Index climbed by 0.6 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.'s FTSE 100 Index inched up by 0.1 percent, the French CAC 40 Index edged down by 0.2 percent and the German DAX Index fell by 0.5 percent.

In the bond market, treasuries closed roughly flat for the second consecutive session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 2.357 percent.

Looking Ahead

A report on weekly jobless claims may attract some attention on Thursday, although traders are likely to be reluctant to make significant moves ahead of Friday's monthly jobs report.