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Investors React Negatively to Fed Decision

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Today's financial recap and tomorrow's financial outlook.

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US markets experienced another roller coaster today. Yesterday, positive earnings reports from US Steel (X), Apple (AAPL), and Yahoo (YHOO) boosted US indices overnight to gains of as much as 1%. Last night, the Singapore Monetary Authority (MAS) lowered the currency band for the Singapore Dollar (SGD) that prompted speculation other central banks in the region, such as New Zealand would follow suit. Today, the Reserve Bank of New Zealand (RBNZ) said that it is keeping rates at present levels for an extended period of time and expects a further decline in the New Zealand Dollar (NZD) in the future.

The FOMC monetary policy statement in the afternoon rattled markets. In the statement, the Fed upgraded its outlook on the economy due to the recently upgraded GDP reports and job growth. However, for the first time in history, it said that it is now including international financial developments into its determination of monetary policy. Market participants took this evolution to indicate that the Fed is prepared to delay its tightening process (expected to begin in June of this year) due to weakness in overseas economies and the strength in the dollar.

The reaction from the market was negative for the most part. US Treasuries continued their rally and US equities had a very deep selloff. The S&P 500 (SPX) declined by 1.5% from its pre-meeting levels and the 10yr Treasury yield ended up down 10bps to 1.72%. Every sector in the SPX closed negative, which is rare, and 93% of all securities fell during the session. Additionally, 91% of trading volume was in falling securities on the NYSE, which is either a capitulatory sign or one that indicates further downside is ahead.

During the day it was speculated that Helmerich & Payne (HP), an oil & gas services company that drills oil and gas wells, would begin to the process of laying off thousands of workers in the coming months. The stock fell 6.38% by the close of trading and received a new sell rating from Citigroup analysts.

Tomorrow's Financial Outlook

Tomorrow, investors will attempt to grapple with the fallout from the Fed's decision today. There will not be any public commentary by Fed officials until Friday morning with Boston Fed President Rosengren scheduled to speak. Other officials are scheduled to speak next week. On the economic calendar, weekly jobless claims and December pending home sales are scheduled to be reported. The Treasury will sell 5- and 7-year notes. The 5-year auction had been postponed due to inclement weather in the Northeast on Tuesday.

There are three major economic releases tomorrow in Europe: December German unemployment, preliminary January German consumer prices, and Eurozone M3 money supply growth for December. Recently, the sensitivity over the change in European consumer prices has been high, so expect a reaction from currencies. Also, with the extraordinary move by the ECB recently to increase its asset purchases, the money supply figure will draw extra scrutiny as it is expected to be at the second highest level of growth in six years.

Abbott Labs (ABT), Colgate Palmolive (CG), Dow Chemical (DOW), Harley Davidson (HOG), Kate Spade (KATE), Northrop Grumman (NOC), ConocoPhillips (COP), PulteGroup (PHM), Valero Energy (VLO), Blackstone (BX), Time Warner Cable (TWC), Ford Motor (F), Raytheon (RTN), Sherwin-Williams (SHW), Ally Financial (ALLY), Eastman Chemical (ETN), Amazon (AMZN), Broadcom (BRCM), Visa (V), and Google (GOOG) are notable companies scheduled to report earnings.


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No positions in stocks mentioned.

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