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Wednesday, September 28, 2022

US stocks tread water as Fed sparks caution

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US stocks erased earlier gains on Wednesday after the Federal Reserve released the minutes from its March meeting – hinting it might start trimming its balance sheet later in the year.

Stocks jumped after payroll processor ADP said private US businesses added 263,000 jobs in March.
The Dow Jones industrial average rose 198 points, and the Nasdaq composite reached an all-time high. Industrial and energy companies made some of the largest gains. But stocks halted their advance when the Federal Reserve disclosed the minutes from its policy meeting last month.

The minutes showed officials discussing plans to reduce the Fed’s bond holdings later this year and disagreeing over whether it would be safe to let inflation rise faster and how to deal with the economic impact of President Donald Trump’s stimulus ideas.

The Standard & Poor’s 500 index lost 7.21 points, or 0.3 per cent, to 2,352.95. The Dow sank 41.09 points, or 0.2 per cent, to 20,648.15. The Nasdaq fell 34.13 points, or 0.6 per cent, to 5,864.48. The Russell 2000 index of small-company stocks lost 16.03 points, or 1.2 per cent, to 1,352.14.

The Federal Reserve bought trillions of dollars’ worth of bonds during the financial crisis of 2008-09 in an effort to stimulate the economy. When its bonds mature, it has continued to buy new ones. But now, the Fed may stop buying new bonds when older ones mature, which would gradually shrink the size of its holdings.

That sent bond prices surging and yields tumbling. The yield on the 10-year Treasury note fell to 2.33 per cent from 2.36 per cent. When bond yields fall, interest rates fall with them. That tends to hurt banks because it means reduced profits on lending, and banks took the largest losses Wednesday.

JPMorgan Chase dropped $1.12, or 1.3 percent, to 86.19 dollars and BB&T shed 56 cents, or 1.3 per cent, to 43.98 dollars. Banks made strong gains in early trading but they wound up with much bigger losses than the rest of the market.

For the last couple of months it seemed investors and the Fed understood each other well, as the central bank indicated it intended to keep raising interest rates gradually assuming the economy continued to grow at a steady clip. It raised rates in December and March. The uncertainty reflected in the Fed’s March meeting may challenge that understanding.

Soup and sandwich chain Panera agreed to be acquired by JAB Holding of Europe for 315 dollars a share. JAB has quietly become a rival to Starbucks in recent years as it owns, or has a large stake in, a series of brands that includes Peet’s Coffee & Tea, Caribou Coffee, Stumptown Coffee, Keurig Green Mountain and Krispy Kreme Doughnuts.

Panera stock jumped in recent days thanks to rumours about a deal. It rose 38.94 dollars, or 14.2 per cent, to 312.94 dollars. The stock was trading at 230 dollars a share a month ago. Early on Wednesday, US and European regulators approved the sale of Swiss agribusiness Syngenta to ChemChina.

ChemChina will have to sell some businesses to complete the 43 dollar billion deal, but those rulings may have made investors more hopeful that two other giant chemical deals will be approved.
Dow Chemical and DuPont, which plan to combine, both rose. Dow Chemical gained 32 cents to 63.52 dollars and DuPont added 67 cents to 80.47 dollars.

Monsanto reported profit and sales that were far better than analysts expected. Monsanto said profits from its corn and soybean businesses grew in the fiscal second quarter. It also backed its forecasts for the year and said its sale to Bayer of Germany should close by the end of the year. The stock rose 1.10 dollars, or 1 per cent, to 115.31 dollars.

Greenbrier, which makes railroad freight car equipment, announced a bigger profit and better sales than analysts expected. It also said rail traffic is growing and announced a 1 billion dollar agreement with a key customer. Greenbrier stock climbed 4.30 dollars, or 10 per cent, to 47.25 dollars.

US crude oil rose 12 cents to 51.15 dollars a barrel in New York. Brent, the international standard, gained 19 cents to 54.36 a barrel in London.

In other energy trading, wholesale gasoline remained at 1.72 dollars a gallon. Heating oil rose 1 cent to 1.60 dollars a gallon. Natural gas decline 3 cents to 3.27 dollars per 1,000 cubic feet. The dollar rose to 110.86 yen from 110.65 yen. The euro fell to 1.0667 dollars from 1.0670 dollars.

The FTSE 100 index in Britain gained 0.1 percent. France’s CAC 40 lost 0.2 per cent and the DAX in Germany fell 0.5 per cent. Japan’s Nikkei 225 index gained 0.3 per cent and Hong Kong’s Hang Seng advanced 0.6 per cent. The Kospi of South Korea finished little changed.

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