The Federal Reserve did not raise interest rates, as expected. But some parts of its statement were dovish, and stocks fell.
First, the scoreboard:
- Dow: 15,940.01, -227.22, (-1.41%)
- S&P 500: 1,881.44, -22.19, (-1.17%)
- Nasdaq: 4,470.54, -97.14, (-2.13%)
- WTI crude oil: $32.30 (+2.70%)
And now, the top stories on Wednesday:
- The Fed is now also worried about international developments. In its statement, the FOMC said it is “closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook.” There had to be some mention of this, following all the chaos that we’ve witnessed in the weeks since the Fed first raised rates last month in the US stock market, Chinese economy, and other pockets of the global economy. And after the Fed statement, stocks collapsed to their lowest levels of the day. The FOMC, “while still not willing to remove the option of going in March, is acknowledging conditions that may prevent them from doing so,” wrote UBS’ Drew Matus to clients. “Indeed, this statement could be read as making the FOMC that much more data dependent heading into the March meeting.”
- It wasn’t just the Fed holding rates: New Zealand’s central bank also held interest rates, sending the kiwi tumbling. The kiwi fell to as low as $0.6424 against the dollar, as the bank said in its statement that some further weakness in the kiwi was appropriate given weakness in export prices. Like the Fed, the Reserve bank of New Zealand is also monitoring global markets.
- Apple shares got crushed throughout the session, falling as low as 6%. The Apple reported earnings after the closing bell on Wednesday, and although it had record profits, it missed on revenues and iPhone sales, and said it expects a quarterly sales decline for the first time in 13 years. The iPhone has been Apple’s blockbuster product, and with its sustained success seemingly in jeopardy, it’s no surprise that investors were spooked. CEO Tim Cook said a stormy global economy shook the company’s performance. And as Business Insider’s Jay Yarow argued, this just means Apple would struggle to sell iPhones, which must happen for its blossoming services business to grow.
- Boeing shares also got slammed, and fell by as much as 10% to a two-year low, after earnings. The company provided guidance for 2016 revenues at a range of $93 billion to $95 billion, but $97.3 billion was the estimate. Last week, Boeing announced it would lower production on its 747-8 due to weak demand and amid falling cargo volumes.
- In a move we don’t see often of late, crude oil closed higher, while stocks closed red. The Energy Information Administration reported that inventories rose by 8.4 million barrels last week to 494.9 million, the most for this time of year in 80 years. And when Bespoke Investment plotted a chart with inventories in 2016 and the 10-year average, the line of current levels was nearly, literally off the chart. In other oil-related news, Russian officials reportedly want to talk to OPEC about production cuts.
- Bill Ackman’s latest letter to Pershing Square shareholders had a lot. The hedge fund manager did some explaining after an unforgettable 2015 during which his fund delivered a -19.3% gross return. He said he missed opportunities to sell some assets when they were near their peak price. He slammed active managers who copycat Pershing’s new positions but sell quicker to meet redemptions, and so make his holdings more volatile. And, he said he’s short China and Saudi Arabia.