17 March 2021

Dow Falls from Record High Ahead of Fed Rates

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News shaping
the markets today

     

What’s happening: US stocks closed mostly lower on Tuesday, with the Dow Jones index retreating from its record high.

What happened: The Dow ended a seven-session winning streak with investors becoming cautious ahead of the Federal Reserve’s policy decision.

The tech-heavy Nasdaq 100 bucked the trend and rebounded from the recent selloff, to close trading higher on Tuesday.

Why it matters: Although the Dow and S&P 500 settled lower on Tuesday, both indices continue to hover around their all-time highs. Despite the bullishness around a faster economic recovery, rising bond yields continued to keep the rally in equities in check. The spike in US Treasury yields has particularly impacted growth stocks and, consequently, the Nasdaq 100.

Equity markets fell to session lows on Tuesday, after the 10-year Treasury yield briefly surpassed the 1.62% level.

“The distribution of COVID-19 vaccines is bringing us closer to a fully reopened economy and is likely the most important factor in assessing economic growth prospects for 2021,” strategists at LPL Financial said. “We expect interest rates to fade as a threat to markets.”

Sentiment for mega cap tech stocks, like Apple and Amazon, has not been as buoyant, with investors turning their focus to value stocks from growth stocks. Tuesday was a good session for vaccine manufacturers, with Moderna’s stock adding 6% on news of the company starting to test its vaccine candidate in the paediatric segment. AstraZeneca’s stock also recorded some gains after WHO members backed its vaccine, despite some European countries suspending its use on blot clot concerns.

Investor sentiment was also hurt by a higher-than-expected 3% decline in retail sales for February, after a 7.6% growth in January.

The Federal Reserve started its two-day policy meeting on Tuesday, which will be followed by a statement from the bank’s Chairman Jerome Powell today. Investors expect some guidance from the central bank on rates and inflation matters.

The Dow Jones shed around 129 points to close at 32,825.95 on Tuesday, while the S&P 500 declined 0.2% to reach 3,962.71, after hitting a record intraday high. The tech-heavy Nasdaq 100 gained 0.53% to close at 13,152.28.

What to watch: Investors will keep an eye on the Fed chief’s interest rate outlook. Markets fear that the central bank may hike rates earlier than projected in a bid to contain rising inflation.

Investors also await data on housing starts and building permits from the US. Housing starts are expected to decline to an annualized rate of 1.56 million in February, while building permits are projected to decline to a 1.75 million annual rate.

The Markets Today

     

Crude oil will be in focus today, ahead of the EIA’s (Energy Information Administration) report on inventories.

Context: Oil prices traded lower on Tuesday, with crude futures recording a decline for a third straight session.

Details: Oil prices traded higher last week, with traders shrugging off news of growing crude inventories, supported by a sharp decline in gasoline and other products. However, the crude rally cooled off on concerns around a halt in the vaccine rollout in Europe and a new covid-19 variant being detected in the US resulted. Both crude benchmarks have gained more than 30% so far this year.

Last week, the EIA said that US crude inventories had grown by 13.8 million barrels in the week ended March 5, following a massive rise of 21.6 million barrels in the previous week, as refinery activity continued to rebound from Texas winter storms in February.

The API (American Petroleum Institute) said late Tuesday that crude stockpiles in the US had contracted by 1.047 million barrels for the week ended March 12, following a 12.792 million increase in the prior week.

WTI (West Texas Intermediate) crude for April delivery fell 0.9% to close at $64.80 per barrel on the NYMEX (New York Mercantile Exchange) on Tuesday. May Brent crude slipped 0.7% to settle at $68.39 per barrel on ICE Futures Europe.

Among other energy products, April gasoline fell 0.2% to $2.10 a gallon, while April heating oil lost 0.8% to $1.93 a gallon on Tuesday.

What to watch: Markets await the EIA’s report on crude inventories, which are expected to rise by another 400,000 barrels in the latest week. Analysts also expect the EIA to report a supply decline of 1.4 million barrels for gasoline, with distillate supplies likely to decline 900,000 barrels.

Rising covid-19 cases remain one of the top concerns for markets, with total infections surpassing 120.6 million globally.

Other Markets: European trading indices closed higher on Tuesday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 up by 0.80%, 0.66%, 0.32% and 0.88%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Spain's balance of trade, South Africa's SACCI business confidence index and retail sales, Eurozone’s construction output and consumer price inflation, Canada’s inflation rate, Argentina’s leading economic index, Russia’s producer prices as well as the US MBA mortgage applications.

 

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