The S&P 500 lost 0.01% and the Dow traded lower by 0.14% The S&P ran into resistance at 1700 and retreated back to the flat line today. The FOMC policy statement did not catch anyone by surprise. The Fed decided to maintain its current policy course, saying economic growth is expected to improve in the second half of the year. They stated that inflation below their 2.0% target could pose a risk to the performance of the economy.
Second quarter GDP exceeded expectations with a reading of 1.7%. The consensus estimate called for a number of 1.1%. Personal consumption spending fueled the number. The July Chicago Purchasing Managers Index beat expectations also. The actual number was 52.3 versus the estimate of 51.5.
REITs and other higher yielding areas of the market like telecom and utilities lagged on the day. Media was a leading group as Comcast reported stronger than expected numbers. Two areas of the market that will benefit from higher interest rates, banks and managed care stocks, were leaders on the day. Homebuilders rallied sharply after the Fed commented that they will keep a close watch on interest rates as they manage the tapering process.
The battle over Herbalife continued today. The stock rose by 9% after it was disclosed that hedge fund titan George Soros has taken a significant stake in the stock. HLF shares rose 45% for the month. The spike in shares has hurt another major player in the hedge fund world. Bill Ackman has an enormous publicly disclosed short position in the stock. He claimed today that he has not covered one share in his short position.
The bank index rose by close to 0.50% on the day. Both money center and regional banks were strong performers. Money continues to move into this area of the market as investors feel the group will be one of the biggest beneficiaries of higher interest rates. As the yield curve steepens the spread that banks earn increases.
Asset managers have come under pressure over the past week or so. These stocks spiked into earnings season and had seen some profit taking. The group bounced back nicely today.
Industrial stocks outperformed today. The sector reacted favorably to better than expected ADP employment numbers: 200,000 vs. an estimated 180,000. Recent winners like MMM and Illinois Tool Works gained again today. The transports moved higher by 0.50% after retreating from their recent high. The better than expected GDP and employment numbers point to stronger economic growth going forward and is a positive for the transports.
Energy managed a small gain today. Crude was up sharply gaining near 2%. Solar stocks saw profit taking after an aggressive recent move higher. Coal stocks gave back much of their early gains but still outpaced the broad market.
NBC reported stronger than expected numbers as part of the Comcast report. The strong numbers helped other media names. Disney, CBS, and Fox all rallied on the day. CBS reported better than expected numbers after the close.
Strong numbers from Hyatt helped hotels and cruise lines stocks. Gaming stocks were higher when better than expected numbers from Macau were released.
Managed care stocks led the healthcare sector while biotech stocks underperformed. Managed care stocks were higher across the board. There is little in the way of legislation to derail these names and they will benefit from an increase in interest rates.
Source: PFS Group
