All About the Fed: What You Missed on Wall Street This Week
Months of waiting and intense speculation came to an end this week when the Federal Reserve announced its decision not to raise interest rates.
In case you missed it, these were the biggest events on Wall Street this week.
The Fed Rate Hike That Wasn’t
On Thursday the Federal Reserve announced after a two-day policy meeting that it left its benchmark interest rate unchanged at historic lows of between 0 – 0.25% -- a range they were taken to during the height of the Great Recession in 2008.
The markets capped the session mostly flat after volatile trading on the heels of the announcement. On the session, the Dow traded in a 294-point range. Mark Luschini, chief investment strategist at Janny Montgomery Scott, said the market is still struggling for direction in the wake of the central bank’s decision. On Friday, both the Dow and S&P 500 gave up their weekly gains while all three major averages closed more than 1% lower.
“We’re going to have to see how investors continue to respond to what the Fed acknowledged which is not just concerns over the domestic economy, but rather what’s taking place outside the United States…we will be focusing on emerging-market activity, and especially China.”
Data Disappointed Investors
Data have been a keen focus for Wall Street this year as the Fed has reiterated its intention to rely heavily on economic developments in the U.S. before it initiates the first hike. Because of that, Wall Street looks to each key report for clues as to which way the central bank might lean.
On Tuesday, August retail sales data underwhelmed investors. Sales for the month, which include the first part of the back-to-school shopping season, rose 0.2%, below expectations for a 0.3% increase. Excluding the volatile auto component, sales ticked up 0.1% compared to forecasts for a 0.2% gain.
Wednesday brought the latest read on the Commerce Department’s consumer price index, a gauge of consumer-level inflation. Again, the data was a letdown for the Street. CPI declined 0.1% compared to expectations for the gauge to remain unchanged. Excluding the food and energy components, prices rose 0.1%, in-line with expectations.
“Inflation continues to be light. If you look at the Fed’s favorite measure of inflation, the price consumption expenditure index, if you remove shelter, which is a large component of its calculation, it’s only up 0.8%, so that’s a complete whiff on the 2% target,” Luschini said.
Rogue Earnings Results
Third quarter earnings season doesn’t officially ramp up until next month, and ahead of the curve were two major players including Oracle (NASDAQ:ORCL) and Adobe (NASDAQ:ADBE)
The strong dollar hit Oracle’s top line in the company’s fiscal first quarter as it said consumers shifted to lower-margin cloud-based software and ditched the more traditional packaged software options. Sales sagged 1.7% for the quarter, but it was less than the 5.4% decline the company saw in the year ago period. On the bottom line, Oracle saw profits of 53 cents a share.
Adobe, meanwhile, posted a beat on both lines during its fiscal third quarter. The maker of popular photo-editing software Photoshop said better-than-forecasted net subscriptions to its Creative Cloud Software helped drive its quarterly results. However, the company warned its current-quarter revenue and profit would likely come in below expectations.
Looking Ahead: Housing Data on Tap Next Week
As the Fed continues to remain data-dependent, all eyes will be keenly focused on the freshest set of economic reports in the next several months until liftoff.
Next week, Wall Street can expect a slew of data on the housing market, including new and existing home sales. Also on tap is the latest read on durable goods orders, consumer sentiment, and the third and final reading on second-quarter gross domestic product for the U.S.
“Housing is important, that’s about 4% of GDP, has a lot to do with how people feel about their net worth and their lot in life relative to the value of their home, furnishings that accompany home purchases. I look for the news there to be pretty good because we’ve seen several good reports this past week on the housing market, particularly homebuilder confidence which is at a decade high,” Luschini said.