Thursday, November 5, 2009

Fed Day Recap

As widely anticipated, the Federal Reserve kept interest rates on hold today, and in fact announced it would keep them low for an extended time (they are currently virtually at zero, with the target rates for Fed funds ranging between 0.00% and 0.25%). Trading around Fed announcements is typically very volatile, so market analysts suggest investors should not read too much into the fact that stocks traded lower late in today's session. The Fed's policy statement did not bring any surprises, with the Fed stating that it will 'continue to employ a wide range of tools to promote economic recovery and to preserve price stability.' Prior to the announcement, some investors had feared that the Fed might announce a tightening policy, starting to remove liquidity from the market. Rather than blaming the Fed, one market observer commented that today's strong late-day pullback should be attributed to an influential banking analyst making a bearish call on the financial sector.

Several key economic data releases were made today, one of which suggested the pace of job losses in the US might be slowing. According to payroll services firm ADP, in October the private sector shed a further 203,000 jobs (227,000 jobs were lost in September). This number exceeded economists' expectations for a loss of 198,000 jobs in October. Note that the APP report is considered a precursor to Friday's official government nonfarm payrolls report (the 'jobs report'). A second unemployment-related report was however somewhat more positive: Outplacement firm Challenger, Gray & Christmas had calculated that the number of planned layoffs in October was down 16% as compared to September, with 55,679 layoffs planned last month.

In other economic news, the Institute for Supply Management came out with its latest reading on the services sector, showing a modest decline in its Services index from a reading of 50.9 in September to a value of 50.6 in October. Economists had however been expecting a rise on the index to 51.5.

After the bell, Cisco reported earnings. Although the company announced a 19% drop in profits as well as a 13% cut in revenue for its fiscal first quarter, Cisco's CEO suggested business conditions had bottomed out roughly half a year ago and that estimated revenues for the current quarter would beat estimates. Cisco's stock gained ground in after-hours trading. Meanwhile, QUALCOMM reportedly missed its earnings estimates, saying its profits declined 50% compared to last year; however, the stock also rose somewhat in after-hours trading. In other tech company news, Microsoft announced it would lay off a further 800 workers around the globe (bringing the total number of layoffs at the company to 5800 for 2009).

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