Stocks Turn In Mixed Performance On Choppy Trading Day - U.S. Commentary

(RTTNews) - After failing to sustain an initial upward move, stocks fluctuated over the course of the trading session on Wednesday before ending the day mixed. The choppy trading came as traders digested upbeat GDP data as well as the Federal Reserve's monetary policy announcement.

The major averages eventually closed on opposite sides of the unchanged line. While the Dow dipped 31.75 points or 0.2 percent to 16,880.36, the Nasdaq climbed 20.20 points or 0.5 percent to 4,462.90 and the S&P 500 inched up 0.12 points or less than a tenth of a percent to 1,970.07.

Early buying interest was generated by the release of a report from the Commerce Department showing that U.S. economic activity rebounded by more than anticipated in the second quarter.

The Commerce Department's preliminary report said GDP increased by 4.0 percent in the second quarter following a revised 2.1 percent decrease in the first quarter.

Economists had expected GDP to rise by 3.0 percent compared to the 2.9 percent drop that had been reported for the previous quarter.

While the report generated some optimism about the economy, the data also fueled speculation that the Fed could begin raising interest rates sooner than previously anticipated.

Later in the day, the Fed announced its widely expected decision to reduce the pace of its asset purchases by another $10 billion to $25 billion per month.

The Fed's accompanying statement acknowledged the rebound in economic activity in the second quarter but said a range of labor market indicators suggests that there remains significant underutilization of labor resources.

With regard to the outlook for interest rates, the central bank said it continues to anticipate maintaining the current target range for a considerable time after the asset purchase program ends.

However, Philadelphia Fed President Charles Plosser objected to the guidance, arguing that such language is time dependent and does not reflect the considerable economic progress that has been made.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "We broadly agree with Plosser and think that the Fed will eventually begin to raise rates in March next year, in response to signs of rising wage and price inflation."

"But the centrists on the FOMC aren't going to abandon their view that there is still plenty of labor market slack until they see signs that wage growth is accelerating," he added.

Sector News

Reflecting the mixed performance by the broader markets, the major sector indices also ended the day on opposite sides of the unchanged line.

Trucking stocks showed a strong move to the upside on the day, driving Dow Jones Trucking Index up by 2.7 percent. C.H. Robinson (CHRW) helped lead the trucking sector higher after reporting better than expected second quarter earnings.

Significant strength was also visible among internet, networking, and semiconductor stocks, contributing to the advance by the tech-heavy Nasdaq.

On the other hand, utilities stocks moved sharply lower over the course of the session, resulting in a 1.7 percent drop by the Dow Jones Utilities Average. With the loss, the average fell to its lowest closing level in well over a month.

Gold, natural gas, and housing stocks also came under pressure on the day, offsetting the strength seen in the aforementioned sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index crept up by 0.2 percent, while China's Shanghai Composite Index edged down by 0.1 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the French CAC 40 Index tumbled by 1.2 percent, the German DAX Index and the U.K.'s FTSE 100 Index dropped by 0.6 percent and 0.5 percent, respectively.

In the bond market, treasuries came under pressure on the heels of the GDP data and remained firmly in the red after the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, surged up by 9.2 basis points to 2.554 percent.

Looking Ahead

While reaction to the Fed statement may continue to impact trading on Thursday, traders are also likely to keep an eye on reports on weekly jobless claims and Chicago-area business activity.

A number of big-name companies are also due to report their quarterly results before the start of trading on Thursday, including Exxon Mobil (XOM), MasterCard (MA), Sony (SNE), and Kellogg (K).