Choppy Stocks Slump as Markets Parse Fed Minutes
NEW YORK ( TheStreet) -- Major U.S. stock markets closed lower Wednesday despite a stronger-than-expected home resale report as investors remained jittery about the prospects of a near-term decline in monthly bond purchases by the Federal Reserve .
Markets dipped slightly lower in the morning until minutes from the Federal Open Market Committee's latest policy-making meeting emerged to further sink markets on worries that the central bank may begin to taper its stimulus program in September. The U.S. equity indices then pared the losses and spiked into positive territory, before settling back below the flatline.
"There's no news there," said Brad McMillan, chief investment officer at Commonwealth Financial. "The market looked at it and said, 'Oh my gosh, they're going to taper; Oh my gosh maybe they won't; oh my gosh we're back where we were.'"
Existing-home sales rose to a three-year high and greater-than-expected seasonally adjusted annual rate of 5.39 million for July from a downwardly-revised pace of 5.06 million in June, according to the National Association of Realtors. Economists on average were expecting existing home sales to come in at 5.15 million for last month.
Before the market open, data showed that U.S. home loan applications declined a second consecutive week for the week of Aug. 16, according to the Mortgage Bankers Association. Its seasonally adjusted index of mortgage application activity covering refinancing and home purchase demand slipped 4.6% as 30-year mortgage rates climbed 12 basis points to 4.68%.
Millan Mulraine, a New York-based senior U.S. macro strategist at TD Securities, wrote in a note that overall the existing home sales report was very encouraging and provides further confirmation of progress of a more normal housing market recovery. However, he cautions also that the upside surprise on the headline print "exaggerates" the true underlying tone in the housing market.
"The level of sales is likely to have been flattered by the rush of potential buyers into the market to lock-in lower mortgage rates," Mulraine explained. "Given this, we expect to see some moderation in activity in the coming months, as higher mortgage rates take some of the air from the recovery."