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Market Snapshot: Dow, S&P 500 book worst declines in a month after Fed minutes show taper plans later this year

U.S. stock benchmarks finished lower for a second day Wednesday, with losses accelerating after the Federal Reserve’s July policy meeting minutes showed plans to reduce the central bank’s monetary support late this year.

The Fed minutes comes a day after the Dow Jones Industrial Average and S&P 500 index broke a streak of five straight record finishes.

What did major indexes end?

The Dow
DJIA,
-1.08%

shed 382.59 points, or 1.1%, to finish at 34,960.69.

The S&P 500
SPX,
-1.07%

fell 47.81 points, or 1.1%, closing at 4,400.26.

The Nasdaq Composite Index
COMP,
-0.89%

fell 130.27 points, or 0.9%, ending at 14,525.91.

On Tuesday, the Dow fell 282.12 points, or 0.8%, while the S&P 500 declined 0.7%, retreating from record levels after data showed a larger-than-expected drop in July retail sales. The Nasdaq dropped 0.9%.

What drove the market?

Federal Reserve officials ramped up debate around the timing of an eventual pull back of the central bank’s easy monetary policies, according to minutes of the central bank’s July 27-28 policy meeting released Wednesday afternoon.

The minutes showed plans to consider reducing the central bank’s monthly asset purchases of $120 billion in Treasurys and mortgage-backed securities, likely by the end of the year, but they also suggested interest rates could still stay near zero for some time.

Read: ‘Most’ top Fed officials backed taper to start this year, minutes of July meeting show

“I’ve been in the camp that they will tip their hat more clearly next week,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas, speaking of next week’s symposium on monetary policy in Jackson Hole, Wyoming, Jackson Hole.

Although, light options trading also suggests that “most people either don’t think the Fed is going to say a whole lot, or they don’t think the markets will react much,” during next week’s summit, Frederick told MarketWatch in a phone interview.

With stocks lower and gold prices higher after the Fed minutes, State Street Global Advisor chief investment strategist Michael Arone said the market is showing some hesitancy by investors about a potential premature pullback of monetary support, right as slumping consumer confidence and U.S. retail sales point to jitters about the pace of the economic recovery.

“I think the Fed could be reducing monetary policy support at a perhaps tenuous time for the economy recovery,” Arone said.

News reports earlier this week said policy makers were nearing an agreement to begin scaling back purchases by November, with The Wall Street Journal reporting some policy makers were looking to end purchases by mid-2022.

“Since the July FOMC meeting, the probability of a September announcement and an October, or November, start date to tapering those purchases has increased considerably, in our view, with the August payroll release coming out in early September likely to be the most important factor to tip the scales,” BlackRock’s Bob Miller, head of Americas fundamental fixed income, wrote in emailed comments.

St. Louis Fed President Bullard on Wednesday also said the U.S. economy won’t be derailed by the delta variant of the coronavirus, but pointed to a red-hot U.S. housing market that should be monitored carefully, during a noon interview with MarketWatch. Bullard is not a voting member of the Fed’s policymaking committee this year, but will be next year.

Boston Fed President Eric Rosengren, who will also be a voting member of the policy-setting committee next year, said he would support tapering the large-scale asset purchases this fall because rising inflation and debt loads could eventually threaten the recovery, in an interview with the Financial Times

“The question is how will inflation be viewed at that time,” Kent Engelke, chief economic strategist at Capitol Securities, told MarketWatch. “I think inflation is gathering steam and today’s housing data show inflation is becoming systemic with the massive increase in rents.”

Markets have been wobbly since a string of record closes for the S&P 500 index and the Dow, representing a notable comeback for equities that had looked wounded by questions about the impact of the spread of the coronavirus delta variant in the world’s two largest economies, the U.S. and China.

Need to know: Labor Day has been a turning point in markets the last three years. Here’s what one strategist sees happening next.

In U.S. economic data Wednesday, home builders started construction on homes at a seasonally-adjusted annual rate of 1.53 million in July, representing a 7% decrease, the U.S. Census Bureau reported. Meanwhile, permitting for new homes occurred at a seasonally-adjusted annual rate of 1.64 million, up 2.6% from June and 6% from a year ago.

In COVID news, the Biden administration on Wednesday authorized that most Americans, as soon as this Friday, can  get a COVID-19 booster shot eight months after being fully vaccinated.

The news comes as the daily average of new cases was up 52% from two weeks ago, and 4.5 times the average of 31,138 a month ago, according to a New York Times tracker. The daily average of deaths slipped to 696 on Tuesday from 704 on Monday, while hospitalizations increased to 83,291 from 82,519 on Monday, the most since Feb. 11. 

See also: Investors compare 2021 stock-market rally to the pre-crash summer of 1987 — should they?

Which companies were in focus?

Shares of Target Corp.
TGT,
-2.78%

fell 2.8% Wednesday, despite results that topped earnings and revenue expectations as it showed a slowdown in growth in shopping activity from the COVID-19 highs.

Krispy Kreme Inc.
DNUT,
-6.91%

late Tuesday said its losses widened in the spring, but executives blamed the decline on costs associated with returning to the public market and established annual guidance that surpassed analysts’ estimates. Shares shed 6.9% on Wednesday.

Shares of Lowe’s Cos. LOW rose 9.6% Wednesday, after the home improvement retailer reported fiscal second-quarter profit, sales and same-store sales that beat expectations, and provided an upbeat full-year outlook.

Children’s Place IncPLCE shares fell 6.5% after the kids clothing and accessories retailer reported second quarter revenue that missed Street expectations.

TJX Cos. TJX reported fiscal second-quarter net income of $785.7 million, or 64 cents per share, after a loss of $214.2 million, or 18 cents per share, last year. Its stock advanced 5.6%.

Shares of Lumentum Holdings IncLITE rose 1.8% Wednesday, after the optical networking company swung to a fiscal fourth-quarter profit and reported revenue that rose above expectations, while providing an upbeat outlook.

Chili’s parent Brinker International IncEAT shares rose 1.3% after the restaurant company reported fiscal fourth-quarter earnings that missed expectations.

Lululemon Athletica IncLULU said Wednesday that it has invested in Genomatica, a company that makes sustainable materials. Shares fell 0.3%.

Analog Devices IncADI reported Wednesday record fiscal third-quarter profit and revenue above expectations, as gross margin improved, while the fourth-quarter outlook was in line with forecasts, and the chipmaker’s stock fell 0.3%.

How did other assets do?

The yield on the 10-year Treasury note TMUBMUSD10Y was 1.5 basis points higher at 1.273%. Yields and debt prices move in opposite directions.

The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was virtually unchanged, up less than 0.1% on the session.

Oil futures closed lower, with the U.S. benchmark CL. 1 down 1.7% to settle at $65.46 a barrel on the New York Mercantile Exchange. Gold futures GC00 settled lower too, down 0.2% at $1,784.40 an ounce, but moved higher after the Fed minutes.

In European equities, the Stoxx Europe 600 SXXP rose 0.1%, while London’s FTSE 100 UKX declined by 0.2%.

In Asia, the Shanghai Composite SHCOMP added 1.1% and Japan’s Nikkei 225 NIK rose 0.6%, while Hong Kong’s Hang Seng Index HSI closed 0.5% higher on the session.

William Watts contributed reporting

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