After Three Weeks of Gains, Markets Drop Slightly—Despite Fed’s Rate Cut

News

Topline: The stock market barely missed out on a fourth consecutive weekly advance, with the major indexes finishing slightly down for the week after the Federal Reserve’s much-anticipated decision to cut interest rates for the second time since 2008.

  • The Dow Jones Industrial Average was down 0.8% this week, taking a hit on Friday afternoon after the news that Chinese trade negotiators cut their visit to the U.S. short. The S&P 500 finished the week largely unchanged, losing 0.2%, but still just shy of its all-time closing high of 3,025. Gold gained on a weaker dollar, rallying 4.5% this week in the wake of the Saudi oil attack and the Fed’s decision to cut rates by another quarter point. Bitcoin prices fell just over 1.5% since Monday.
  • After much anticipation, the Fed cut the federal funds rate—the rate at which banks lend money to each other—for the second time this year on Wednesday, putting the range at 1.75% to 2%. While the decision was in line with market expectations, the Fed boardroom remains divided over future stimulus, and the outlook on additional rate cuts remains unclear. 
  • “We took this step to keep the economy strong,” Fed Chair Jerome Powell said in a statement. He indicated that the Fed would “act as appropriate” to sustain the economy’s “moderate rate” of expansion. A steady job market and strong consumer spending have managed to prop up the economy for now, offsetting weakening manufacturing data and low inflation.
  • Following up on impressive earnings last quarter, software giant Microsoft (MSFT) (up 40% so far this year) announced a $40 billion stock buyback plan that helped send its stock soaring to its highest level in the last 12 months. Shares of Netflix (NFLX), on the other hand, fell by over 8% as the impact of the streaming wars began to take its toll: CEO Reed Hastings warned of “tough competition” coming from Apple (AAPL) and Disney (DIS). Another stock that tanked this week was FedEx (FDX), which fell 14% after missing earnings expectations and delivering a grim outlook on international trade. “Global trade volumes will contract this year on an annual basis for the first time since 2009,” FedEx’s chief marketing and communications officer, Brie Carere, said on Tuesday. Streaming-media player Roku (ROKU) fell over 26% this week, taking a big hit on Friday after Pivotal Research analyst Jeff Wlodarczak released a note titled, “Is Roku Broku?”—in which he predicted a further 45% decline for the stock.

What we don’t know: Deputy-level trade negotiations began between the U.S. and China this week after last week’s “gestures of goodwill” from both sides, but the news that the Chinese delegation cut its visit short on Friday will worry investors and have an impact on the market going into next week.

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