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Wall Street ended lower on Wednesday, pulled down by materials and tech stocks. Indexes ended the session with modest losses after the minutes from the last Fed meeting were released. All three major indexes ended in the red.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.4% or 129.83 points to close at 34,288.64. Seventeen components of the 30-stock index ended in negative territory, while 13 ended in positive.
The S&P 500 lost 0.2%, or 8.77 points, to close at 4,446.82. Seven of the 11 broad sectors of the benchmark index ended in negative territory. The Materials Select Sector SPDR (XLB), the Technology Select Sector SPDR (XLK) and the Energy Select Sector SPDR (XLE) receded 2.5%, 0.6% and 0.6%, respectively, while the Utilities Select Sector SPDR (XLU) advanced 1.1%.
The tech-heavy Nasdaq declined 25.12 points, or 0.2%, to finish at 13,791.65.
The fear-gauge CBOE Volatility Index (VIX) was up 3.5% at 14.18. A total of 10.3 billion shares were traded on Wednesday, lower than the last 20-session average of 11.1 billion. Decliners outnumbered advancers on the NYSE by a 2.29-to-1 ratio. On Nasdaq, a 1.84-to-1 ratio favored declining issues.
Factory Orders Come in Lower Than Expected
The U.S. Census Bureau announced that factory orders for May increased $1.6 billion or 0.3%. This followed a 0.3% April increase, which was revised down from 0.4%. Notably, factory orders were up in five of the last six months. The number for May was less than half of what was expected for the period. The primary reason being cited is that higher interest rates are eroding demand.
Coupled with the fact that ISM manufacturing PMI had also fallen in June, as was reflected by data released in the previous session, and had stayed below 50 for the eighth straight month, it can be safe to infer that manufacturing is contracting. This had an adverse effect on the materials sector, which plunged in the session.
Fed Minutes Keep Investors Worried
While Fed minutes from the June meeting released on Wednesday reflected a united Federal Reserve on the decision of the rate-hike pause, many officials were seen to be of the view that further rate hikes would be needed soon. The June pause was, in essence, a time-buying exercise.
It was also revealed that many officials foresee a mild recession toward the end of the year and avoiding a downturn as only a little less likely than their initial assumption. This only confirms investor fear that the Fed might not be able to attain a soft landing for the economy, howsoever mild the downturn may be.
There is a general consensus that the July meeting would entail another 25 bps hike in interest rates, and the Fed would be looking for another 25 bps hike for the rest of the year. However, with the central bank maintaining a hawkish stance, the rate-hike cycle might yet continue after that.
Tech stocks suffered as a result. In recessionary times, mega-cap growth stocks seem overvalued in comparison to their prospects. What also did not help the tech sector was a dip in semiconductors, arising out of news from China that it had raised stakes in the ongoing economic war with the United States by restricting its supply of gallium and germanium, two very essential elements of chip manufacturing.
Image: Bigstock
Stock Market News for Jul 6, 2023
Wall Street ended lower on Wednesday, pulled down by materials and tech stocks. Indexes ended the session with modest losses after the minutes from the last Fed meeting were released. All three major indexes ended in the red.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.4% or 129.83 points to close at 34,288.64. Seventeen components of the 30-stock index ended in negative territory, while 13 ended in positive.
The S&P 500 lost 0.2%, or 8.77 points, to close at 4,446.82. Seven of the 11 broad sectors of the benchmark index ended in negative territory. The Materials Select Sector SPDR (XLB), the Technology Select Sector SPDR (XLK) and the Energy Select Sector SPDR (XLE) receded 2.5%, 0.6% and 0.6%, respectively, while the Utilities Select Sector SPDR (XLU) advanced 1.1%.
The tech-heavy Nasdaq declined 25.12 points, or 0.2%, to finish at 13,791.65.
The fear-gauge CBOE Volatility Index (VIX) was up 3.5% at 14.18. A total of 10.3 billion shares were traded on Wednesday, lower than the last 20-session average of 11.1 billion. Decliners outnumbered advancers on the NYSE by a 2.29-to-1 ratio. On Nasdaq, a 1.84-to-1 ratio favored declining issues.
Factory Orders Come in Lower Than Expected
The U.S. Census Bureau announced that factory orders for May increased $1.6 billion or 0.3%. This followed a 0.3% April increase, which was revised down from 0.4%. Notably, factory orders were up in five of the last six months. The number for May was less than half of what was expected for the period. The primary reason being cited is that higher interest rates are eroding demand.
Coupled with the fact that ISM manufacturing PMI had also fallen in June, as was reflected by data released in the previous session, and had stayed below 50 for the eighth straight month, it can be safe to infer that manufacturing is contracting. This had an adverse effect on the materials sector, which plunged in the session.
Fed Minutes Keep Investors Worried
While Fed minutes from the June meeting released on Wednesday reflected a united Federal Reserve on the decision of the rate-hike pause, many officials were seen to be of the view that further rate hikes would be needed soon. The June pause was, in essence, a time-buying exercise.
It was also revealed that many officials foresee a mild recession toward the end of the year and avoiding a downturn as only a little less likely than their initial assumption. This only confirms investor fear that the Fed might not be able to attain a soft landing for the economy, howsoever mild the downturn may be.
There is a general consensus that the July meeting would entail another 25 bps hike in interest rates, and the Fed would be looking for another 25 bps hike for the rest of the year. However, with the central bank maintaining a hawkish stance, the rate-hike cycle might yet continue after that.
Tech stocks suffered as a result. In recessionary times, mega-cap growth stocks seem overvalued in comparison to their prospects. What also did not help the tech sector was a dip in semiconductors, arising out of news from China that it had raised stakes in the ongoing economic war with the United States by restricting its supply of gallium and germanium, two very essential elements of chip manufacturing.
Consequently, shares of Advanced Micro Devices, Inc. (AMD - Free Report) and Intel Corporation (INTC - Free Report) fell 1.6% and 3.3%, respectively. Both carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.