Stock Market Today: Fed Signals It Could Pare Back Stimulus in 2021
The Dow suffered its worst loss in a month after FOMC minutes revealed the Fed was planning for a possible bond-purchase taper later this year.
Stocks slipped for a second consecutive day as the Federal Reserve showed signs that it's getting ready to at least tug on the punch bowl.
The Fed on Wednesday released its Federal Open Market Committee (FOMC) minutes, which showed that while the central bank seemed intent on keeping interest rates level for at least the next year, it was planning for the possibility of slowing its monthly purchases of bonds before the end of the year.
"Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year," the minutes stated.
The timing of any tapering remains a moving target, however.
Bob Miller, BlackRock's head of Americas Fundamental Fixed Income, says that since July's 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."
"What we've been hearing from Fed officials since the July FOMC meeting was reflected in the meeting minutes; that they're divided on the timing and mechanics of the tapering process," says Lawrence Gillum, fixed income strategist for independent broker-dealer LPL Financial. "The minutes do show that the committee has largely agreed that a proportional reduction in both mortgage and Treasury securities makes the most sense once that the tapering process begins, which is consistent with our expectations."
The major indexes wavered between gains and losses prior to the minutes' release, then slumped solidly into the close.
The Dow Jones Industrial Average suffered its worst decline in roughly a month, dropping 1.1% to 34,960, led lower by Chevron (CVX, -2.7%). The oil major struggled along with the rest of the energy sector, as U.S. crude oil futures (-1.7% to $65.46 per barrel) fell on a rising U.S. dollar and mounting concerns over COVID's potential impact on demand.
The S&P 500 was cut by 1.1% to 4,400, the Nasdaq Composite finished 0.9% lower to 14,525, and the small-cap Russell 2000 closed down 0.8% to 2,158.
"Both the Fed and market participants learned lessons from the Taper Tantrum," says Sean Bandazian, investment analyst for registered investment advisor Cornerstone Wealth. "While we expect less of a surprise this time around there is still reason to believe we will see volatility throughout areas of the market with high sensitivity to interest rates."
Other news in the stock market today:
- Lowe's Companies (LOW) bucked the bearish trend on Wall Street today, surging 9.6% after the home improvement retailer reported earnings. While LOW said same-store sales slipped 1.6% on a year-over-year basis, this was less than analysts were expecting. Additionally, the company brought in higher-than-anticipated adjusted earnings of $4.25 per share and revenue of $27.6 billion, and lifted its full-year sales forecast.
- Target (TGT, -2.8%) also reported earnings today, though shares shrugged at a strong report. The retailer bringing in better-than-expected adjusted earnings per share of $3.64 and revenue of $25.2 billion. TGT also reported same-store sales growth of 8.9% on a year-over-year basis, while e-commerce comparable sales rose 10% from the year-ago period. "TGT again posted best-in-class same store sales despite a steep sequential drop in e-commerce growth, as store traffic jumped in tandem with vaccine rollouts," says Garrett Nelson (Buy), equity analyst at CFRA. "We continue to like how TGT is positioned among big box retailers with its more discretionary product mix and stronger operating margins, which should help it better navigate cost pressures."
- Gold futures snapped their five-day losing streak, closing down 0.2% at $1,784.40 an ounce.
- The CBOE Volatility Index (VIX) jumped again, up 18.4% to 21.21.
- Bitcoin prices neared $45,900 today but reversed into the close, shedding 1.3% to $44,935.11. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
Warren Buffett's Latest Trades
Want to know who else has been selling recently? Warren Buffett.
Berkshire Hathaway (BRK.B), the holding company of which Buffett is chairman and CEO, just released its latest Form 13F. The quarterly filing grants Buffett-ologists a chance to get a bead on what the Oracle of Omaha and his lieutenants have been doing with their stocks – and it isn't all that reassuring.
Berkshire has now reduced or exited more positions than it has beefed up or initiated for six consecutive quarters, starting with the COVID-impacted Q1 of last year. Indeed, Buffett has hit the sell button 84 different times in that span – versus just 35 buys – resulting in a vastly altered Berkshire Hathaway equity portfolio compared to just two years ago.
So, just what exactly was Warren Buffett up to during the second quarter of this year?
Even more selling.
Berkshire unloaded part or all of 11 investments, while adding to only three positions … and "inheriting" a brand-new stock through no action of its own. Read on as we break down each and every one of Warren Buffett's most recent market moves.