Dow retreats following Federal Reserve meeting

After being up 100 prior to the Federal Reserve's announcement, the Dow gave that back plus some. Dow fell 23 (4th straight down day), but advancers over decliners a strong 5-2 & NAZ rose 27. Only 11 Dow stocks were up. Banks had another good day while remaining in their sideways trading band (150s).


S&P 500 FINANCIALS INDEX

Value 156.73

Change 1.72

% Change 1.1%

MLPs gave back a little of the early advance in the PM as did REITs. The Alerian MLP Index & Dow Jones REIT Index each gained 2+ & junk bond funds were higher. Oil dropped into the 68s (down from 72s just last week).


Alerian MLP Index --- 2 weeks





The Federal Reserve held monetary policy steady, saying the economic recession was easing & it signaled worries are fading about a possible downward spiral in prices. The FED decided to hold interest rates near zero, reached in Dec, & repeated it would likely stay unusually low for some time. The Fed's policy-setting panel said it would hold to a previous pledge to buy $1.45T in mortgage-related debt by year-end & $300B in long term U.S. gov debt by autumn.

The FED said, "Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing, & conditions in financial markets have generally improved in recent months." Their strategy is to hold a steady course.

•Fed Leaves Its Bond-Purchase Program Unchanged, Says Recession Is Easing
•Treasuries Fall as Fed Policy Makers Leave Debt-Buying Program Unchanged


This was all but expected but markets did not take the news well, Treasuries sold off in the PM. The chart below shows the yield today for the 10 year Treasury bond, jumping over 10 basis points at the end of the day. The yield on the 2 year Treasury note shot up 5 basis points to 1.20%.


10-Year Treasury Yield Index - 1 day





Markets were disturbed that the FED talked about inflation being subdued for some time. They were hoping for aggressive action, especially to buy additional Treasuries & mortgages debt. In addition there was disappointment that no mention of an exit strategy (how the FED would unwind its present positions) was made. While the bulk of the retreat for the Dow was largely due to losses at Boeing (BA) & United Tech (UTX), increased uncertainty from the FED will not be a plus going forward.

Dow Jones Industrials --- 2 weeks