U.S. Stocks Open Lower as Markets Parse Fed's Growth Concerns

By David Hodari 

U.S. stocks fell in early trading Thursday, as markets continued to digest the Federal Reserve's signal of no more rate increases this year and a sharply lower forecast for U.S. growth.

The Dow Jones Industrial Average opened 0.3% lower and the S&P 500 traded 0.2% lower in early trading. Johnson & Johnson shares were down 0.2% in early trade, while Boeing shares were slipped 0.5%, despite the company announcing plans to fix its 737 MAX airplane.

Government bond yields and banking stocks extended losses, which began Wednesday after the Federal Reserve's decision to leave its policy rate unchanged and Chairman Jerome Powell's comment that "it may be some time before the outlook for jobs and inflation calls clearly for a change in [interest rate] policy."

The yield on 10-year U.S. Treasurys slipped to a fresh 14-month low of 2.513% from 2.537% late Wednesday, with yields falling as prices rise. Yields fall as prices rise. The WSJ Dollar Index, meanwhile, edged up 0.1% although remained 0.7% lower over the past five days.

While investors had widely expected a soft tone from the central bank, you don't want to overcommunicate how dovish you are," said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management. "There's a difference between markets expecting you to be dovish and then actually being very dovish because that raises the question of whether they know something we don't."

Banking stocks were down slightly ahead of the U.S. opening bell after financial companies in the S&P 500 dropped 2.1% Wednesday. Lower yields pressure financial institutions' net interest margins and crimp their ability to generate profits.

European financial companies faced similar pressure, with the Stoxx Europe 600's banking basket down 1% as yields on government bonds fell. Benchmark 10-year German government bonds yielded 0.043% Thursday from 0.08% the day before.

The broader Stoxx Europe 600 was down 0.1% in late morning trading, with financial sector losses somewhat mitigated by buoyant basic resources and energy baskets -- up 1.1% and 0.7% -- with the slip in the U.S. dollar that followed the Fed's decision boosting dollar-denominated commodities.

Energy futures reversed some of their gains, though, with Brent crude oil last down 0.3% at $68.29 a barrel, although remained up 1.7% so far this week. West Texas Intermediate futures fell 0.5% on the day to $59.95 a barrel although remained 2.4% higher since early Monday.

U.S. figures have been relatively upbeat when compared with figures from other major global economies this year. In that context, markets will continue to scrutinize briefings from other central banks.

Stocks have rallied so far this year despite bond-market signals that investors remain concerned about weak growth figures out of major global economies. That divergence is unlikely to continue, investors said.

"You can't have a bond market saying the Fed's going to have to cut rates and an equity market ignoring that," said Larry Hatheway, chief economist and head of investment solutions at GAM Holding. "I tend to think the bond market is mispriced for the likely outcome."

The yearlong trade spat between the U.S. and China is one of the factors economists have cited as playing a part in ebbing global growth. That said, Asian markets were mixed, despite President Trump's comments that a trade deal with China isn't imminent and the U.S. expects to keep tariffs on Chinese goods in place for a "substantial period of time," even after a trade deal.

Hong Kong's Hang Seng benchmark fell 0.9%, although indexes in China, South Korea, and Taiwan notched gains of less than 1% despite Japanese markets were closed for a public holiday.

The British pound fell 0.5% against the U.S. dollar, and the U.K.'s FTSE 100 rose 0.6% -- the two tend to move in opposite directions -- as Britain's attempts to leave the European Union faced fresh complications.

Prime Minister Theresa May asked the EU on Wednesday to delay its departure from the bloc until June 30, but EU leaders signaled their reluctance to back a postponement. Analysts played down the chances of victory for the prime minister's deal on the third attempt and suggested a rising likelihood of a 'no deal' Brexit.

Write to David Hodari at [e-mail]

(END) Dow Jones Newswires

March 21, 2019 09:46 ET (13:46 GMT)

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