RTTNews - Following this morning's surge, stocks are in a holding pattern in early afternoon trading on Wednesday, continuing to post notable gains ahead of today's Fed announcement. The major averages are all in positive territory, with traders picking up stocks at reduced prices after two days of profit taking.
Traders are looking ahead to the policy announcement from the Federal Reserve at 2:15 p.m. ET. While interest rates are likely be maintained at the current level, traders will pay close attention to the Fed's economic commentary along with any additional information on its quantitative easing measures.
In an interview with RTT News, Cary Leahey, a senior economist with Decision Economics, discussed the implications of the FOMC decision, indicating why interest rates will not be raised just yet.
There is a rule that if the unemployment rate falls a quarter of a percentage point and stays there for a little a couple of months, the Fed almost always very quickly tights. They're not going to tighten until that happens, he said.
Leahey added that investors will be looking for whether or not the Fed is going to extend. emergency programs, particularly those that are purchasing treasuries and mortgage backed products, though they have until their next meeting in September to chew it over.
Leahey feels that the market is looking for the Fed to say, We have the tools and the willingness to use them when the time comes, but that time hasn't come yet.
Also this afternoon, traders will look to the results of the Treasury Department's sale of $23 billion in 10-year notes, scheduled to be revealed at 1 p.m. ET. Interest rates have been in focus in recent months, with investors concerned about rising bond yields amid the flood of bond supply.
Earlier, traders largely shrugged off a report from the Commerce Department showing that the U.S. trade deficit widened in the month of June compared to the previous month. The deficit for the month still came in narrower than economists had been anticipating.
The major averages have seen little change in recent dealing, hovering near their best levels of the day. The Dow is currently up 121.44 at 9,362.89, the Nasdaq is up 33.16 at 2,002.89 and the S&P 500 is up 12.73 at 1,007.08.
Housing stocks are continuing to post strong gains in early afternoon trading, as reflected by the 3.2 percent gain being shown by the Philadelphia Housing Sector Index. The advance is helping the index to reclaim some of the ground lost in the previous two sessions.
The index is being helped by shares of Toll Brothers (TOL), which have jumped by 13.2 percent on the day to reach their best intraday price in over seven months. The gain by Toll Brothers comes after the company reported the first increase in signed contracts in four years
Networking, airline, financial and biotechnology stocks are taking back recent losses with today's rally, while electronic storage stocks are also extending recent gains. The NYSE Arca Disk Drive Index is up by 1.9 percent, reaching a fresh ten-month intraday high.
Oil service, software, semiconductor, trucking and defense stocks are also seeing considerable moves to the upside, reflecting the day's broad based strength.
Stocks In The News
Cree Inc. (CREE) is on the rise after the company reported fourth quarter earnings of $0.18 per share on revenues of $148.1 million, edged out analyst estimates. The stock is up by 8.3 percent, climbing to its best intraday level in over seventeen months.
ADC Telecommunications Inc. (ADCT) is also moving higher after providing a revised third quarter earnings outlook above analyst estimates. The firm expected earnings of $0.11 to $0.16 per share compared to estimates of $0.08 per share. The stock is posting a gain of 26.1 percent, reaching a two-month intraday high.
On the other hand, shares of processed and packaged foods company Sara Lee (SLE) are sliding after the firm revealed a narrower loss for the fourth quarter that fell well short of expectations. The stock is falling by 9.1 percent, plunging to a one-month intraday low.
In Focus: Trade Data, Earnings News
As mentioned above, the Commerce Department report revealed that the trade deficit widened to $27.0 billion in June from $26.0 billion in May, with imports increasing at a faster pace than exports. Economists had been expecting a somewhat more significant increase in the size of the deficit to $28.7 billion.
In earnings news, Applied Materials Inc. (AMAT), the world's biggest semiconductor equipment maker, said after the markets closed Tuesday that it swung to a third quarter loss, as sales dropped 39 percent amid weak demand in light of the continuing global recession. Nonetheless, the bottom line beat analyst expectations.
Department store operator Macy's (M) reported second quarter adjusted earnings that beat analyst estimates, although revenues fell just short of forecasts.
Overseas, Swiss food and beverage company Nestle SA reported a decline in its net profit for the first half of the year, as sales declined in the tough economy. The company's profit attributable to non-controlling interests, however, increased significantly from last year.
The world's largest mining company, BHP Billiton (BHP) reported a 30 percent drop in its profit for the full year, excluding write downs, hurt by a sharp drop in metal prices and lower demand.
In overseas trading, stock markets across the Asia-Pacific region finished markedly lower on Wednesday. Japan's benchmark Nikkei 225 Index dropped by 1.4 percent, while Hong Kong's Hang Seng Index plunged by 3 percent.
Meanwhile, the major European markets closed considerably higher, with the French CAC 40 Index and the German DAX Index rising by 1.5 percent and 1.2 percent, respectively, while the U.K.'s FTSE 100 Index posted a gain of 1 percent.
In the bond markets, treasuries are holding near the unchanged line ahead of the Fed announcement. Subsequently the yield on the benchmark ten-year note is trading at 3.699 percent, posting a gain of less than a basis point on the day.
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