Traders Hope for Signals From Fed as Earnings Woes Mount

Traders will pick through the minutes of the Fed’s June meeting Wednesday for any clues of further easing.

Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.
Daniel Acker | Bloomberg | Getty Images
Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.

Even the slightest prospect of more Fed easing has provided some of the underpinnings for a stock market that has become increasingly uneasy about the second-quarter earnings period. After Friday’s disappointing June jobs report, expectations for more action from the Fed has increased.

“People will look for that, but they are likely to be disappointed,” said Zane Brown, fixed income strategist at Lord Abbett.

“With 1.5 percent on the 10-year, what else are they going to do?” he said. “Are they really going to be able to buy mortgages or add to their Treasury holdings to lower rates even more than they already are?” Brown said the flight-to-quality trade has pushed the market in the Fed’s direction already and further asset purchases, or quantitative easing , would probably not do much.

“Even the most liberal members of the Fed have said that they’re going to wait until there’s more signs of a slowdown,” he said.

Besides the Fed minutes, released at 2 p.m. ET, there is international trade data Wednesday at 8:30 a.m. and wholesale trade at 10 a.m. There is also a $21 billion 10-year auction at 1 p.m., and Brown said he expects it to be well bid. The USDA also releases its latest global crop report and U.S. livestock report at 8:30 a.m. ET.

There are a few earnings reports, including Marriott ahead of the bell, and Texas Industries, after the close. Chevron reports interim results after the bell.

The Dow Tuesday slumped 83 points to 12,653, and the S&P was down at 10 at 1341. The 10-year was yielding 1.502 percent late in the day.

“Europe’s causing problems,” said Steve Massocca of Wedbush Securities. He said Europe is hitting Asian exports, which in turn is hurting commodities prices. “It’s starting to ripple around the world, and I think that’s impacting a lot of what’s going on, and it’s starting to impact corporate profits. Corporate profits had been hanging in there, and now it’s starting to be a problem. I think there’s a lot of places in the market where there’s value, but for the market at large — I wouldn’t be a buyer.”

Art Cashin, director of floor operations at UBS, said the S&P 500 broke an important technical support area at 1344/1345, and the market was spooked a bit by comments from Italian Prime Minister Mario Monti, who said he would serve just one term. “They’re looking in closets for ghosts,” he said of anxious traders.

Other comments from Monti that Italy could be interested in tapping the euro zone’s rescue fund for bond support was also a negative. Earlier Tuesday, euro-zone finance ministers agreed to speed up abailout program for Spain’s banks, but markets continued to worry as a German court considered whether it would approve of Europe’s bailout mechanisms.

Earnings news also worried stocks Tuesday. Cumminsslashed its revenue guidance for the year, saying order trends for its engines in the U.S. softened, and demand in Brazil, China and India is not as strong as expected. Advanced Micro Devices was another disappointment, reporting Monday that its revenues were off due to weaker than expected sales in China and Europe and that it would not make full-year estimates.

A skeptical market also bid down shares of Alcoa, even after the company beat earnings forecast after the bell Monday.

Follow Patti Domm on Twitter: @pattidomm

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