Stocks Close Roughly Flat Following Fed-Inspired Volatility - U.S. Commentary

(RTTNews) - After turning higher over the course of the previous session, stocks once again recovered from an early move to the downside during trading on Wednesday. The major averages were unable to sustain the upward move, however, ending the day roughly flat.

While the tech-heavy Nasdaq inched up 7.10 points or 0.1 percent to 4,906.36, reaching its best closing level since early 2000, the Dow slipped 17.73 points or 0.1 percent to 18,029.85 and the S&P 500 edged down 0.66 points or less than a tenth of a percent to 2,099.68.

Stocks saw some volatility in afternoon trading following the release of the minutes of the Federal Reserve's January monetary policy meeting.

Traders seemed to focus on the statement that many participants said the balance of risks associated with policy normalization had inclined them toward keeping interest rates at lower levels for a longer time.

However, Paul Ashworth, Chief U.S. Economist at Capital Economics, argued that the statement could mean either a longer time than markets currently expect or a longer time than in a normal economic cycle

"If it's the latter, it is hardly news," Ashworth said. "After all, if the Fed was following its pre-crisis reaction function (Taylor rule), the fed funds rate would already be north of 2%."

"To our minds, the use of the past tense 'had inclined' pushes us more towards that latter interpretation," he added. "Either way, it is very poorly worded."

The minutes also showed that many participants worried dropping the "patient" language in the statement would result in a shift in market expectations for the beginning of policy firming toward an unduly narrow range of dates.

Participants subsequently discussed other ways to further underscore the data dependency of their decision regarding when to raise rates.

"The problem is that the Fed has only been able to qualify very vaguely what improvement in the data it is looking for," Ashworth said.

The minutes of the Fed meeting largely overshadowed a batch of disappointing U.S. economic data, including a report from the Commerce Department showing a bigger than expected drop in housing starts. Nonetheless, traders seemed somewhat reluctant to make any significant moves as they continued to keep a close eye on the Greek debt negotiations.

Sector News

Despite the lackluster close by the broader markets, significant strength was visible among utilities stocks. The Dow Jones Utilities Averages surged up by 2.2 percent, bouncing well off the two-month closing low set in the previous session.

The strong rebound by interest rate-sensitive utilities stocks largely reflected a dovish interpretation of the Fed minutes.

Gold stocks also spiked higher in reaction to the Fed minutes, driving the NYSE Arca Gold Bugs Index up by 2 percent. The index showed a substantial recovery after hitting its lowest intraday level in a month earlier in the session.

Airline and biotechnology stocks also moved notably higher over the course of the session, while weakness remained visible among banking and telecom stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index surged up by 1.2 percent, while Hong Kong's Hang Seng Index rose by 0.2 percent in an abbreviated session.

The major European markets also moved mostly higher, although the U.K.'s FTSE 100 Index closed nearly flat. The German DAX Index advanced by 0.6 percent, while the French CAC 40 Index jumped by 1 percent.

In the bond market, treasuries moved sharply higher late in the session in reaction to the Fed minutes. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled 7.9 basis points to 2.066 percent.

Looking Ahead

Any developments regarding the Greek debt negotiations are likely to be in focus on Thursday, with Finance Minister Yanis Varoufakis expressing confidence an extension of Greece's loan agreement will be approved by Friday.

Trading could also be impacted by reaction to U.S. reports on weekly jobless claims, leading economic indicators and Philadelphia-area manufacturing activity.

Additionally, retail giant Wal-Mart (WMT) is among the companies due to release their quarterly results before the start of trading on Thursday.