Blue-chips opened lower as investors tried to read between the lines of yesterday's statement from the Federal Reserve's policy makers.
The Dow Jones average was down 39 points, or 0.2%, at 17,740, while the broader-based S&P 500 was off six points (0.3%) at 2,084.
The Nasdaq Composite, chock-full of tech stocks, was harder hit, sliding 26 points (0.5%) to 5,069, as online payments specialist PayPal (NASDAQ:PYPL) fell in the wake of disappointing third quarter numbers released after the close of trading yesterday.
As pundits pored over the Fed's statement, released after the policy makers had, as expected, left interest rates unchanged, the consensus was that the Fed had left the door open for a rate hike before the end of the year.
“A striking change to the statement was the removal of a line that discussed how global developments may threaten growth in the US. With the Fed’s focus shifted away from global developments such as China’s deceleration and falling commodity prices, the pressure is back on US economic data as the trigger for when the Fed will move forward with a rate rise,” suggested research analyst Lukman Otunuga, at currencies trader FXTM..
“According to the central bank, despite the consecutive soft NFP [non-farm payrolls] announcements from September, the US economy has expanded at a moderate pace. This strong hawkish bias has offered a lifeline to the vulnerable dollar, and with most investors swayed on the possibility of a US rate hike in 2015, the USD may keep appreciating until the next FOMC statement in December,” the analyst suggested.
Meanwhile, this morning the preliminary gross domestic product (GDP) number came in a bit weaker than expected.
On an annualized basis, GDP rose 1.5% quarter-on-quarter in the second quarter, versus the consensus forecast of 1.6% growth, but James Knightley at Global Economics Ing said the details weren't all bad.
“Inventories was a huge drag, subtracting 1.44 percentage points from growth. Investment in non-residential structures was down 4%, but everything else grew and net exports didn’t really take anything away either,” he opined.
“In terms of the positive contributions, personal consumer spending rose 3.2% after expanding 3.6% in 2Q while equipment investment was strong (+5.3%) and residential investment was very firm at +6.1%. Government consumption was at 1.7%. As a result, it offers some support to the Fed’s comments in yesterday’s FOMC statement regarding the strength of the economy. However, we really need to see an improvement in the labor market and higher inflation readings to be confident in the idea of a December Fed rate hike,” he suggested.
In the clash of old school and new school payments systems providers, the old school Mastercard came out ahead of online payments pioneer PayPal.
Mastercard (NYSE:MA), the operator of the second-largest payments network, said net income fell 3.7% to US$977mln from US$1.02bn the year before, but the fall was not as precipitous as analysts had feared.
Reported earnings per share dipped to 86 cents from 87 cents, but excluding a US$50mln charge relating to its pension plan, the number rose to 91 cents, which topped analysts' expectations by three cents.
The shares were up 1.2% at US$101.33 in early deals.
PayPal (NASDAQ:PYPL), in its first trading update since being cut loose from former owner eBay, saw its shares slide 1.4% to US$36.05, as investors sold shares after mulling over the results released after the close of trading yesterday.
Sales totaled US$2.26bn in the September quarter from US$1.98bn a year earlier; that was slightly lower than the $2.27bn projected by analysts, according to Capital IQ.
The company reported a profit of US$301mln, or US$0.25 per share, for the third quarter, from US$234mln, or US$0.19 per share, a year earlier.
Reports of consolidation in the pharmaceuticals sector keep arriving faster than airplanes at JFK airport, and today it was Allergan (NYSE:AGN), up almost 8% at US$309.50, that was in the frame, with Pfizer (NYSE:PFE) reportedly sizing up the Botox maker.
Medical insurance provider Aetna (NYSE:AET) was defying the weaker trend, rising US$3.81 to US$114.92 after third quarter figures were ahead of expectations.
Net income in the third quarter dipped 6% to US$560.1mln from US$594.5mln in the same quarter of 2014.
Underlying earnings per share of US$1.90 were 12 cents higher than analysts had expected, and prompted the company to shift its full-year earnings per share guidance range up to US$7.45-7.55, which means the midpoint is now 10 cents higher than previous guidance.