US Market confused with Federal Reserve’s benign comments

While Dow and S&P close flat, Intel and Cisco help Nasdaq register marginal gain

US stocks finished flat and mixed today, Thursday, 28 June, 2007 after the Federal Reserve decided to leave interest rates unchanged at 5.25% for eighth straight time and also added that economic growth should continue at a moderate pace while inflation remained its top concern. It was exactly what bulls and bears - both wanted to hear.

The benign comments from Federal Reserve which were eventually interpreted as fairly neutral gave investors little guiding influence about the short-term direction for equities. While Dow and S&P 500 got confused, analyst upgrades on three of the Nasdaq’s most influential names - Intel, Cisco Systems and Starbucks helped the index to close in green.

Half of the 30 Dow stocks closed in the green today. The Dow Jones Industrials reversed its way from a 40 point loss in early trading session to gain 36 points mid day but ultimately slipped in the final half an hour of trading closing lower by 5.45 points at 13422.28. Tech heavy Nasdaq gained 3.02 points to close at 2608.37 but S&P 500 too closed lower marginally by 0.62 points at 1505.71.

General Motors, Boeing, Merck, IBM and Honeywell were the main Dow winners today while H-P, Walt Disney, Mc Donald’s and Caterpillar were the main laggards.

GM shares gained 2% today after news that it would sell its Allison Transmission business for $5.6 billion to Carlyle Group and Onex Corp.

Q1 GDP final read and Initial Claims meet estimates

When market opened in the morning, stocks opened lower with only Nasdaq being in the green. Dow was down by almost 18 points. Of the five sectors trading lower, the very influential Financial sector was the day’s biggest laggard.

Before market opened in the morning, the day’s economic reports were out. The final read on Q1 GDP checked in at 0.7% (consensus 0.8%) while initial claims fell 13K to 313K (consensus 315K). Since both reports were very close to expectations, it did not have much impact on the market on either way.

Energy Stocks continued to trade with little fanfare as split sector leadership dictated morning's action. Oil prices eclipsing the psychologically significant $70/bbl mark for the first time since September was acting as a headwind for buyers.

Technology was in focus for a second straight session and was reflected in the Nasdaq again outperforming its blue-chip counterparts.

Economic growth was moderate during the first half of year

The actual text of the Fed’s statement read: "Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

Bonds under pressure from Fed’s decision and GDP revision

Bonds came under pressure from the GDP revision and after the Fed’s decision. The bond market read the Fed statement as indicating central bankers remained concerned about inflation. The 10-year Treasury note fell 9/32 to close at 95-7/32 with a yield of 5.121%.

Crude oil futures increased further today after yesterday’s weekly inventory report by Energy Department showed that gasoline inventory and distillate supplies registered an unexpected fall for the week ended 22 June. Gasoline stock fell despite an increase in refinery activity for the week. Refinery utilization had climbed by 89.4% of capacity last week as against 87.6% last week.

Crude-oil futures for light sweet crude for August delivery closed at $69.57/barrel (higher by $0.60/barrel or 0.9%) on the New York Mercantile Exchange. Futures touched $70.52 in intraday trading. Prices are down 3.6% from a year ago.

Trading volumes showed 1.5 billion shares exchanging hands on the New York Stock Exchange and 1.9 billion trading on the Nasdaq stock exchange. Advancing issues topped decliners by 18 to 13 on the NYSE, and by 15 to 14 on Nasdaq.