Sectors Split On Rate Prospects
Blue chip, industrial and financial
funds managed mild gains on Wednesday after a market-friendly inflation report raised hopes that the Federal Reserve’s
credit-tightening campaign may be reaching an end.
However, data showing a cooling
economy has raised worries about corporate profits, which weighs heaviest on the
tech funds and their holdings. Look at the gains by the defensive pharmaceutical
and consumer staples funds. To me, that confirms the anxious mood over earnings.
In short, this remains a market in
search of direction.
Exchange-Traded
Funds
The Labor Department reported that
Consumer Price Index edged up 0.1% in May. Economists polled by Reuters had expected a 0.2%
rise.Â
The July Federal Funds Futures
contract closed Wednesday at 93.435 on the Chicago Board of Trade. That implies
only a 26% probability that Federal Reserve policy chiefs will raise rates a
quarter point when they convene June 28. In other words, the market has priced
in a 74% probability that the Fed will stand pat on rates. The contract priced
in a 32% chance of hike as of Tuesday’s close.
If you’re interested in learning how
to calculate interest-rate probabilities from the fed funds futures, check out
my new lesson on this topic, which goes live on the TradingMarkets.com home page
on Saturday June 17.
The improved rate outlook helped the
Financial SPDR
(
XLF |
Quote |
Chart |
News |
PowerRating) perk up. The tradable fund added 1.7%.
The Basic Industries SPDR
(
XLB |
Quote |
Chart |
News |
PowerRating)
rose 2.7%, the day’s biggest gain among the exchange-traded funds.
The Pharmaceutical HOLDR
(
PPH |
Quote |
Chart |
News |
PowerRating)
followed through on Tuesday’s rally. The basket of drug company stocks gained
1.8%.
One of the fund’s major holdings,
Schering-Plough
(
SGP |
Quote |
Chart |
News |
PowerRating) rose 3 to 48 1/2 on active trade after Morgan Stanley
Dean Witter upgraded stock to a “strong buy” from “neutral.”
The Consumer Staples SPDR
(
XLP |
Quote |
Chart |
News |
PowerRating)
added 1.2%.
On the downside, some of the large-cap
tech stocks headed lower, weighing on the sector. Intel
(
INTC |
Quote |
Chart |
News |
PowerRating) lost 5
1/16 to 126 7/16, leading semiconductor stocks lower. That helped send the
Semiconductor HOLDR
(
SMH |
Quote |
Chart |
News |
PowerRating), which began trading May 5, to a 4.3% loss, the
day’s biggest percentage decline among the tradable funds. Hewlett-Packard
(
HWP |
Quote |
Chart |
News |
PowerRating)
slid 5 to 114, closing near the low of the day, following an analyst downgrade.
The
B2B Internet HOLDR
(
BHH |
Quote |
Chart |
News |
PowerRating) fell 3.4%, the Broadband HOLDR
(
BDH |
Quote |
Chart |
News |
PowerRating) 2.9%. The
Nasdaq 100 Tracking Stock
(
QQQ |
Quote |
Chart |
News |
PowerRating) backpedaled 2.3%. The Cubes appear to be
consolidating in a tight range, constructive behavior after the sharp rally off
their May 24 low of 72 1/4.
Â