As was expected, the Federal Reserve left interest rates unchanged following the conclusion of its two-day meeting today. But what market participants wanted was inklings of hope that a rate cut could materialize later this year. That wish was granted, helping stocks rally into the close.
Importantly, the word “patient” was not featured in the Federal Open Market Committee (FOMC) statement, indicating the Fed could take a more proactive approach to managing rates if the world’s largest economy starts to show signs of weakness.
“The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased,” said the FOMC. “In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”
One Fed member, James Bullard, preferred to lower rates by 25 basis points at this meeting. That was not enough to deliver the coveted rate cut, but it was enough to send the Nasdaq Composite and the S&P 500 higher by 0.42% and 0.3%. The Dow Jones Industrial Average gained 0.15%.
Winners, But Were There Enough?
Yes, the Dow is home to just 30 stocks and in late trading, two-thirds of those names were higher. But if nitpicking is to occur on an otherwise positive day, it is worth noting that Dow’s offenders today were all cyclical names. Going a bit further with the scrutiny, several of the Dow losers today were among the index’s biggest components. But to be fair, some of these stocks have been on winning streaks and the Wednesday losses were mostly modest.
UnitedHealth Group (NYSE:UNH), the Dow Jones’ largest healthcare component, was the blue-chip index’s biggest winner today, adding 1.82%. Not to play politics here, but UNH’s Wednesday rally occurred a day after President Donald Trump kicked off his reelection at a rally in Orlando.
Obviously, the election is a long way out, but as has been note here, UNH and rival healthcare providers have been under pressure amid speculation that Medicare For All could become a reality if a Democrat wins the White House. Again, November 2020 is a long way away, but UNH has been trending higher for almost two months and looks poised to wipe out its year-to-date loss.
American Express (NYSE:AXP) was one of the best-performing financial services names in the Dow today. The stock, a Warren Buffett favorite, added 1.01% after Bank of America Merrill Lynch analyst Jason Kupferberg put a “buy” rating and a $145 price target on the shares, implying significant upside from Wednesday’s close.
AXP is a “a worthy investment which offers customers unique experiences beyond traditional rewards points” and “we have been pleasantly surprised to see [American Express] strategically raise card fees to help offset these costs,” said the analyst in a note cited by Barron’s.
Home improvement giant Home Depot (NYSE:HD) ticked higher, aided by the Fed minutes. Lower interest rates often benefit companies with exposure to the residential real estate market, and that rate chatter could aid Home Depot in its quest to break through resistance at the $210 area. If that happens, it could be off to the races for the stock.
Bottom Line on the Dow Jones Today
It is difficult to complain about Wednesday’s price action. Sure, stocks could have gained more, but for the most part, investors got what they wanted in terms of dovish Fed commentary. Plus, Fed funds futures are indicating a July rate cut is a real possibility.
Fortunately, investors looking to prepare for a rate cut without incurring significantly higher risk can turned to a beloved asset class: dividend stocks and ETFs. Several dividend ETFs hit record highs today and a large batch are withing just a few percentage points of doing the same.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
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