Daily Insight: Jobless Claims, CPI, Philly Fed

U.S. stock indices ended mixed as the Dow and NASDAQ gained ground, while the broad S&P 500 closed fractionally lower. Mid and small cap stock indices also closed to the downside.

The broad market bounced between gain and loss on several occasions, as traders were conflicted by the positive of a strong manufacturing report yet the negatives of increased jobless claims and speculation the Fed will move to raise the discount rate – I wouldn’t call that a negative but traders don’t seem to like it much.

The discount rate is the rate at which banks can borrow from the Fed. They last raised the rate on February 18 as they are in the process of normalizing the spread between the discount rate and fed funds – normally disco is one full percentage point above that of fed funds, but the spread was cut to 25 basis points during the crisis and now stands at 50 basis points above fed funds. Now, it’s not like the market sold off on this speculation, the S&P 500 was essentially flat (but then again the rumor was fairly silly as it is unlikely the Fed would leak this news), but if traders are going to get a bit antsy about an increase in the discount rate, what’s going to happen when the Fed eventually begins to increase fed funds?

The 10 major sectors within the S&P 500 were split as five gained ground, while five declined. Industrials’ and health-care led the gainers; energy and financials led the declining sectors.

The Dow was boosted by shares of Boeing, 3M and IBM, which accounted for 60% of the index’s gain.
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Brent Vondera, Senior Analyst