Stocks Little Changed on Fed Decision
Traders work on the floor of the New York Stock Exchange in New York. Photographer: Ramin Talaie/Bloomberg
June 22 (Bloomberg) -- Paul Hickey, co-founder of Bespoke Investment Group, talks about the outlook for the U.S. equity market, investor sentiment and the economy. Hickey speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
June 22 (Bloomberg) -- Doug Sandler, chief equity officer at Riverfront Investment Group LLC, talks about the impact of investor sentiment on the stock market and strategy. Sandler speaks with Jon Erlichman and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
June 22 (Bloomberg) -- Federal Reserve officials said they will maintain record monetary stimulus to support a flagging economic recovery after completing a $600 billion bond-purchase program as scheduled this month. The Federal Open Market Committee released its statement today after a two-day meeting in Washington. Peter Cook reports on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
U.S. stocks were little changed, following a four-day rally for the Standard & Poor’s 500 Index, as the Federal Reserve said it will end its $600 billion bond- purchase program while maintaining record monetary stimulus.
FedEx Corp. (FDX), operator of the biggest cargo airline and considered a proxy for the economy, added 3 percent after forecasting earnings that may top analysts’ estimates as global shipping demand climbs. Adobe Systems Inc. (ADBE), the largest maker of graphic-design software, slumped 5.3 percent after forecasting profit that fell short of analysts’ estimates.
The S&P 500 rose 0.1 percent to 1,296.87 at 12:56 p.m. in New York. The benchmark gauge had risen 2.4 percent over the previous four days. The Dow Jones Industrial Average climbed 4.66 points, or less than 0.1 percent, to 12,194.67 today.
“The economy would have to decelerate materially from here for the Fed to do another round of quantitative easing,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $48 billion. “The economy will continue in a low trajectory of recovery. The underlying fundamentals remain in place. We see little downside risk for stocks.”
The S&P 500 surged 24 percent through yesterday since Fed Chairman Ben S. Bernanke’s Aug. 27 speech in Jackson Hole, Wyoming, where he foreshadowed the second round of quantitative easing, known as QE, to boost the economy.
‘Moderate Pace’
“The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings,” the Federal Open Market Committee said today in a statement after a two-day meeting in Washington. “The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected.”
Bernanke has said record-low interest rates are still needed to spur a recovery that remains “frustratingly slow” two years after the recession ended. Consumer spending has been held back by falling home values, accelerating inflation and an unemployment rate that rose to 9.1 percent last month. At the same time, Bernanke has said growth is likely to pick up as commodity costs recede and factories overcome disruptions of supplies from Japan.
In a Twitter post this morning, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, said the Fed at its Jackson Hole, Wyoming, meeting in August "will likely hint" at a third round of quantitative easing and an effort to limit borrowing costs through interest-rate caps.
Home Prices
U.S. home prices fell 5.7 percent in April from a year earlier, signaling the housing market is struggling to recover as foreclosures weigh down values. The decline was led by an 11 percent drop in the region that includes Nevada and Arizona, the Federal Housing Finance Agency said today. Prices rose 0.8 percent from March, the FHFA said. Economists had projected a 0.3 percent decline from the previous month, according to the average of 18 estimates in a Bloomberg survey.
FedEx gained 3 percent to $91.81. The company is benefiting from a pickup in worldwide shipping and higher pricing. The express unit’s overall revenue per package, or yield, added 10 percent to $22.69 in the quarter through May, FedEx said.
‘Boxes Are Moving’
“The FedEx data today is as good as anything,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, which manages $1.5 billion. “Boxes are still moving and that’s a sign that business is getting done.”
CarMax Inc. (KMX) gained 6.8 percent to $32.58. The largest U.S. seller of used cars sold more vehicles at higher prices in its first fiscal quarter.
Adobe fell 5.3 percent to $30.31. The company said profit for the third quarter may be as low as 50 cents a share, compared with the 54-cent average analyst projection, excluding certain items.
U.S. corporate profit margins are so high that a return to normal will cut about 3 percentage points a year from any future stock-market gains, according to Pierre Lapointe, a strategist at Brockhouse & Cooper Inc.
Margins in the first quarter were 11.3 percent overall and 13 percent in the non-financial category, based on Commerce Department data. These were the highest readings since 2007, before the latest recession started. Both were about two points higher than the average since the 1970s.
“We see no way around margin contraction,” Lapointe and economist Alex Bellefleur wrote yesterday in a report with a similar chart. U.S. companies are vulnerable even though they are increasingly generating profits overseas, they wrote.
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