Wall Street loses all hope of the July highs following less dovish Fed

• DJIA, ended down 334 points, or 1.2%, at 26,864.
• The S&P 500 lost 32 points, or 1.1% to 2,980.  
• The Nasdaq Composite dropped 98 points, or 1.2% to 8,175.

The FOMC today cut fed funds rate 25bps as expected and signalled an earlier end date for its quantitative tightening (August 1). U.S. stocks closed down hard in the red following the Fed announcements, despite an acknowledgement that the US economy was performing, although at risk considering global implications and trade wars. But the fact that there were no clear indications that the Fed was intending to cut again, stocks suffered and gave back speculative gains where the markets had priced in a far more dovish expectation from the Fed.  

Consequently, the Dow Jones Industrial Average, DJIA, ended down 334 points, or 1.2%, at 26,864 while the S&P 500 lost 32 points, or 1.1% to 2,980. The Nasdaq Composite dropped 98 points, or 1.2% to 8,175. The lack of commitment drover President Trump to voice his own thoughts on the matter, “As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!” Trump tweeted.  

ANZ Bank analyst’s comments on the Fed and US data

“While the initial market reaction was muted, the press conference drove much larger moves,” analysts at ANZ noted:

“Fed Chair Powell suggested the Fed isn’t in a long cutting cycle and that the cut was aimed at insuring against downside global risks, noting that the outlook for the US economy remains favourable. This suggest the future policy path will very much depend on whether global data is feeding negatively back into the US. So far, the manufacturing sector has shown weakness in line with the global slump, but the much larger services sector is holding up,” analysts at ANZ bank explained.  

On the data front, the July ADP jobs rose 156k as service jobs rose 147k and goods producing jobs were up 9k. “That was a reasonably strong ADP report, indicating ongoing momentum in the labour market at the start of Q3,” the analysts at ANZ argued.  

DJIA levels

The DJIA index dropped below the 20-DMA and prospects of the July highs are now on the backburners. The index is now supported at the 50-day moving average meeting a rest spot on 23.6% retracement of the 3rd June low to 12th July, a tight spot which meets the April 23rd and 1st May double-top highs which guards a run to the pivot.