Fed Disappoints—US Stocks End Marginally Lower; ECB And Unemployment Numbers On Deck; USO Rises, URA Sinks

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

US stocks ended marginally lower Wednesday as the Federal Reserve decided to hold back another round of asset purchases to boost the economy.

Traders had priced in a Fed move to support the market’s lofty levels even though eight of ten economists surveyed by Bloomberg News were negative on the Federal Reserve initiating further quantitative easing before the next round of FOMC meeting in September.

Markets, however, may witness enhanced volatility tomorrow as the European central bankers begin their monetary policy meeting. It’s now showtime, as ECB head Draghi’s promises of last week better have some meat in them; otherwise, the major indexes may quickly shift into reverse.

The Dow Jones Industrial Average (DJIA) shed 33 points to end at 12,976. Despite the blue-chip index closing lower, the breadth remained positive with 17 of the 30 components within the Dow closed higher.

The S&P 500 Index (SPX) lost 4 points with energy outperforming others while utilities fared the worst among its 10 business groups.

Treasury yields rose from near-record lows as investors grew optimistic over Mario Draghi’s pledge to initiate measures to halt the sovereign debt crisis and mixed domestic economic data.

The ADP employment reading showed marked improvement as US private-sector employers added 163,000 jobs in July versus the 125,000 forcasted.

However, Construction spending grew at a sluggish pace at 0.4 percent in June against 0.5 percent forcasted by analysts. The ISM Manufacturing Index in July also grew slower at 49.8 against the expected 50.1 polled by Briefing.com.

The yield on the benchmark 10-year Treasury notes climbed five basis points to 1.51 percent while 30-year bond yield rose 3 basis points to 2.61 percent.

ETFs in the news:

As markets remained near flat with a negative bias, equity ETFs showed little movement.

However, oil-linked funds brightened after the US Energy Information Administration reported crude oil supplies dropped higher than expected at 6.5 million barrels for the week ended July 27. Gasoline inventories dropped 2.2 million barrels against a forcasted growth of 400,000 barrels.

The United States Oil Fund (USO) emerged among the day’s top gainers, adding 1.50 percent on the day. Other oil-linked funds including the PowerShares DB Oil Fund (DBO) and the iPath Exchange Traded Notes S&P GSCI Crude Oil Total Return Index Medium-Term Notes Series-A (OIL) also surged, rising 1.40 percent and 1.45 percent, respectively.

Even though energy linked funds advanced, the alternative energy sector was among the worst performers. The Global X Uranium ETF (URA) sank 4.22 percent while the Guggenheim Solar ETF (TAN) and the Van Eck Market Vectors Solar Energy ETF (KWT) shed 0.85 percent and 0.78 percent respectively.

As mentioned, the focus will now be on ECB’s Draghi, which is followed by Friday’s all important unemployment report. If these two will disappoint traders just like the Fed did today, I believe that the bears will gain the upper hand unless the QE crowd has found another reason to “believe” in miracles.

Disclosure: No holdings

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