Stocks Tumble after Fed Announcement
Stocks started the US trading session nearly unchanged but moved lower in afternoon trading after the Federal Reserve announced an additional reduction to their bond purchase program. The 10 billion dollar reduction was negative for interest rates which moved sharply higher during the balance of the trading session.
Higher rates are the enemy of stock prices, as it lowers the value of discounted cash flows. 2-year yields moved higher by nearly 10 basis points, which is a surprisingly large move given the tone of the FOMC statement.
The S&P 500 index seemed to hold support levels near the 20-day moving average, but it seems likely that with negative momentum prevailing that large cap stocks will test the 50-day moving average near 1830. Traders should be leery of a close below the 1830 level which could easily lead to a test of the February lows near 1740.
In corporate news which could affect the commodities outlook in equities, JPMorgan has reportedly agreed to sell its commodities-trading operations to Swiss trading house Mercuria Energy Group. The price is likely to be related to the value of commodity inventories held by JPMorgan (NYSE:JPM) . The final amount could depend on the valuation of large stockpiles of oil and metals the bank holds. Prices of oil have declined recently, which could considerably affect the final deal.
Small cap stocks have been the catalyst for large indices making new all-time highs. The Russell rebounded smartly and is poised to generate a new all-time high with a close above.
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