US Stocks End Lower As Yields Jump After Fed Minutes
4:50 pm Wednesday, May 19th, 2021
U.S. stocks ended lower, but well off session low. The S&P 500 declined 0.3% on Wednesday, although it was down as much as 1.6% in early action and spent most of the session on the comeback trail.
The weak start wasn’t catalyzed by any specific news, although some pointed to the huge sell-off in the cryptocurrency market as a reminder that it might be a good idea to take some profits for stocks that are still up big this year. Familiar concerns surrounding inflation, valuations, and peak growth were recounted in the early part of the session as investors de-risked.
Profit-taking efforts were mainly concentrated in the S&P 500 energy (-2.5%), materials (-1.5%), financials (-0.6%), and industrials (-0.6%) sectors. The information technology (+0.3%) and communication services (+0.1%) sectors, however, sneaked their way into positive territory on a closing basis. The Philadelphia Semiconductor Index rose 2.0%.
The turnaround in the information technology sector, which was down 1.7% intraday, helped improve risk sentiment, which was further aided by an appreciation that the S&P 500 reclaimed its 50-day moving average (4081) after slipping below it in the morning.
Later in the day, the FOMC Minutes from the April meeting revealed that some participants thought it might be appropriate to start talking about tapering asset purchases in future meetings if the economy continues to make rapid progress towards the Fed’s goals on employment and inflation.
The stock market’s reaction to this FOMC passage was rather calm, arguably due to a view that it might have been more surprising to see no mention of the need to start talking about tapering asset purchases. Longer-dated Treasury yields moved higher following the Minutes.
The 10-yr yield settled higher by four basis points to 1.68% while the 2-yr yield was unchanged at 0.15%. The U.S. Dollar Index rose 0.5% to 90.16. WTI crude futures fell 3.4%, or $2.20, to $63.31/bbl. The CBOE Volatility Index increased just 3.9% to 22.18 after touching 25.96 at its high.
Separately, Target Corporation (NYSE: TGT) rose 6% to all-time highs following its better-than-expected earnings report. Lowe`s Companies Inc (NYSE:LOW) also exceeded expectations, but shares went the other way.
Wednesday’s economic data was limited to the weekly MBA Mortgage Applications Index, which increased 1.2% following a 2.1% increase in the prior week. On Thursday, investors will receive the weekly Initial and Continuing Claims report, the Conference Board’s Leading Economic Index for April, and the Philadelphia Fed Index for May.
