Dow Jones Industrial Average: 20,648.15 (-41.09, -0.20%)
Reflects changes in 30 well-known stocks (e.g. Apple, General Electric, IBM, Exxon Mobil). Daily movements of +/- 100 points are considered to be large.
S&P 500: 2,352.95 (-7.21, -0.31%)
Reflects changes in 500 stocks that includes large companies across all sectors. Because it consists of so many diverse companies, it is considered one of the best representations of how the stock market is doing. Daily movements of +/- 10 points are considered to be large
NASDAQ: 5,864.48 (-34.13, -0.58%)
Reflects changes in an index of more than 3,000 stocks that consists mainly of technology companies. Stocks such as Google, Amazon.com, and Microsoft are traded on the NASDAQ. Daily movements of +/- 30 points are considered to be large.
The Dow and S&P posted their biggest reversal in 14 months following the release of the minutes from the most recent Federal Reserve meeting
After being up nearly 200 points in the morning, the Dow Jones Industrial Average staged a massive reversal and ended the day lower following the 2:00pm ET release of the minutes from the Federal Reserve meeting in mid-March.
What caused the stock market sell-off is that Fed officials in the minutes said that they want to start unwinding their balance sheet at some point this year. In layman’s terms, the Federal Reserve holds around $4.5 trillion in bonds that they have purchased via several quantitative easing programs following the financial crisis in order to buy assets (mainly Treasury bonds and MBS) in order to lower interest rates (which makes it cheaper for consumers to borrow money, among other things), and therefore stimulate the economy.
However, when the Federal Reserve buys a bond, eventually that bond matures meaning the original investment is returned to the Fed. The Fed has been taking this returned money on matured bonds and then reinvesting it, or in other words continuing to buy bonds and keep the cash in the financial system rather than remove it. However, today’s minutes show that the Fed does plan to change this policy later this year, which means less money supporting the financial system and potentially higher interest rates (more expensive for consumers to borrow money from a bank), and therefore potentially lower stock prices.
Beyond all of this, and perhaps even more importantly, within the minutes Fed officials said the stock market may be overvalued which also contributed to yesterday’s reversal and eventual market decline.
Jobs, jobs, and more jobs
Before the market reversal, stocks were having a nice day due mainly to economic data showing that U.S. companies added 263,000 workers in March, the most since December 2014.
The U.S. Labor Department’s comprehensive monthly jobs report will be released tomorrow morning at 8:30am ET.
Richmond Fed’s Jeffrey Lacker Steps Down Over His Role in 2012 Leak Case – WSJ
Jeffrey Lacker, the Federal Reserve Bank of Richmond President, announced on Tuesday that he would be stepping down due to his involvement in an alleged leak of confidential information back in 2012. In October 2012, Mr. Lacker spoke with an analyst from a firm called Medley Global Advisors. That analyst had confidential information around Fed policy options, and Mr. Lacker believes he may have confirmed or acknowledged the private information. Although Mr. Lacker was expected to retire from the Fed on October 1 of this year, his early departure is important because 1) Lacker was considered to be “hawkish” – meaning he favored higher interest rates and 2) Although Trump will not be nominating Lacker’s replacement since this is for a regional bank position, between now and June 2018 Trump does have the option to renominate or replace Fed Chair Janet Yellen as well as Vice Chair Stan Fischer, meaning the Fed (which sets the level of interest rates) could look a lot different very soon.
PM May triggers ‘historic’ Brexit – Reuters
On March 29, Prime Minister Theresa May officially triggered Article 50 of the EU’s Lisbon Treaty and notified EU President Donald Tusk that Britain would be leaving the European Union. This follows the June 2016 referendum vote in which 51.9% of British citizens voted to leave the EU. The Prime Minister now has 2 years to negotiate the terms of Brexit before it comes into effect in March 2019. May’s challenge will be to negotiate with the other 27 EU states on issues such as trade, security, and finance, while also managing renewed calls from Scotland nationals for their own independence referendum.
Infrastructure overhaul may top $1 trillion, cut red tape: Trump – Bloomberg
Donald Trump has said his infrastructure plan could top $1 trillion in spending to improve the electrical grid and water systems, and rebuild roads, airports, and bridges, among other things. He also promised to speed up approval of infrastructure projects and to cut red tape, saying he would not fund projects that could not be started within 90 days. The stock market rally has been driven by hopes around Trump’s promises to cut corporate taxes, push regulation, and fund infrastructure spending. However, the setback to the administration seen a couple of weeks ago in their efforts to repeal and replace Obamacare has led many to doubt what Trump will be able to get through Congress. While unlikely to happen anytime soon as Republicans continue to focus on their other agenda items, if Trump is able to pass a large infrastructure bill, that would be a positive for stocks.