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Bank stocks jump after Fed decision; Dow closes little changed

  • The SPDR S&P Bank ETF (KBE) outperformed the broader stock market after expectations for a June rate hike increased.
  • The Fed's policymaking committee expressed some misgivings about the U.S. economy growing just 0.7 percent in the first quarter, but added they see the weakness as "transitory."

Bank stocks rose broadly on Wednesday as expectations for a June rate hike from the Federal Reserve increased.

The SPDR S&P Bank ETF (KBE) advanced 0.75 percent, outperforming the broader stock market. The Dow Jones industrial average closed marginally higher with McDonald's contributing the most gains, while the S&P 500 fell 0.14 percent.

The Fed concluded its two-day policy meeting Wednesday afternoon, giving a positive assessment of the U.S. economy while keeping rates unchanged, as was widely expected.

In a statement, the Fed's policymaking committee did express some misgivings about the U.S. economy growing just 0.7 percent in the first quarter, but added they see the weakness as "transitory."

The committee "continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term."

Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets said there were several changes in the FOMC's statement, "but all were in-line with expectations."

"They are still viewing the economy as 'just fine' and another rate hike in June is still clearly on the table," he said.

Market expectations for a rate hike next month jumped to 75 percent from 60 percent, according to Wells Fargo.

Traders on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders on the floor of the New York Stock Exchange.

The central bank did not, however, address its massive $4.5 trillion balance sheet, but Eric Souza of Silicon Valley Bank said he was not surprised by this.

"I expect that to come out in the minutes," said the senior portfolio manager. "Right now, I'm much more interested in the minutes than I am about the statement."

Treasury yields rose slightly, with the short-term two-year note yield near 1.298 percent and the benchmark 10-year yield around 2.311 percent.

"The jobs market is going to be the key for the Fed moving forward," said Matt Toms, chief investment officer of fixed income at Voya Investment Management. "It's really up to the jobs market to continue pushing inflation higher as commodity prices level off."

The U.S. private sector created 177,000 jobs last month, according to a report from ADP and Moody's Analytics. Economists polled by Reuters expected an addition of 175,000 jobs.

The ADP and Moody's Analytics report is seen as a preview to the government's monthly jobs report, which will be released Friday.

"It was pretty close to target," said Randy Frederick, vice president of trading and derivatives at Charles Schwab . "But you have to remember that the ADP number tends to miss the boat. Last time it missed the official payroll number by its biggest margin since 2013."

The final Markit services PMI reading for April hit 53.1 while the ISM non-manufacturing reading reached 57.5.

Wall Street also focused on earnings, particularly those of tech giant Apple. The company reported a mixed quarter overall, with adjusted earnings per share topping analyst expectations while revenue fell just short.

But Apple also said iPhone shipments totaled 50.8 million in the previous quarter, below the expected number of 52 million. Apple's stock declined about 0.3 percent, knocking the Nasdaq composite off an all-time high.

But Brian White, an analyst at Drexel Hamilton, said in a note he still likes Apple.

"Looking forward, we believe investors will be focused on the iPhone 8 this fall, along with the company's raised capital distribution initiative, attractive valuation and potential new innovations. We continue to believe Apple remains among the most underappreciated stocks in the world," White said.

The tech-heavy index ended about 0.4 percent lower after reaching all-time highs on an intraday and closing basis Tuesday.

Nasdaq 2-day chart

Source: FactSet

"The hiccup in Apple's numbers might have led to a slowdown in the Nasdaq and the tech sector overall," said Daniel Deming, managing director at KKM Financial. "The market seems like it's taking a breath as we get more earnings."

This earnings season has been strong thus far, with more than 75 percent of companies beating profit estimates and about 70 percent topping sales forecasts as of Friday morning, according to data from The Earnings Scout.

Equities in the U.S. have done very well over the past month, with the three major indexes rising at least 1 percent in that time period. The Dow, S&P and Nasdaq were also within striking distance of their respective record levels.

Symbol
Name
Price
 
Change
%Change
DJIA
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S&P 500
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NASDAQ
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The Dow Jones industrial average closed 8.01 points higher, or 0.04 percent, at 20,957.90, with Merck leading advancers and Walt Disney lagging.

The S&P 500 fell 3.04 points, or 0.13 percent, to end at 2,388.13, with real estate leading decliners and financials outperforming.

The Nasdaq pulled back 22.82 points, or 0.37 percent, to close at 6,072.55.

About nine stocks declined for every five advancers at the New York Stock Exchange, with an exchange volume of 918.85 million and a composite volume of 3.879 billion at the close.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 10.7.

—CNBC's Jeff Cox, Patti Domm and John Melloy contributed to this report.

On tap this week:

Wednesday

Earnings: Facebook,, AIG, Kraft Heinz, Tesla Motors, Avis Budget, Tableau Software, Wellcare Health, Molson Coors Brewing, Humana, Cheesecake Factory, Fitbit, Groupon

8:15 a.m. ADP payrolls

9:45 a.m. Services PMI

10:00 a.m. ISM non-manufacturing

2:00 p.m. Fed decision

Thursday

Earnings: A-B InBev, Occidental Petroleum, Royal Dutch Shell, Adidas, Kellogg, Viacom, Beazer Homes, AMC Networks, Siemens, Dunkin Brands, Chesapeake Energy, Marathon Oil, Allscripts Healthcare, El Pollo Loco, Shake Shack, PerkinElmer, Zynga, Zillow, Wageworks, DeVry Education, CBS, Activision Blizzard, Herbalife

8:30 a.m. Jobless claims

8:30 a.m. Trade deficit

8:30 a.m. Productivity

8:30 a.m. Unit labor costs

10:00 a.m. Factory orders

Friday

Earnings: TransCanada, Cognizant Tech, Moody's, Cigna, CenterPoint

8:30 a.m. Nonfarm payrolls

3:00 p.m. Consumer credit

11:30 Fed Vice Chairman Stanley Fischer at Hoover Institution Monetary Policy Conference

12:45 a.m. San Francisco Fed President John Williams

1:30 p.m. Chicago Fed President Charles Evans, Boston Fed President Eric Rosengren, St. Louis Fed President James Bullard on panel at Hoover Institution

1:30 p.m. Fed Chair Janet Yellen in webcast from Brown University at event on 125 Years of Women at Brown