U.S. Stocks End Mixed As Fed Officials’ Remarks Pull Focus

Stocks ended a choppy session mixed on Tuesday as investors considered whether the Federal Reserve would unwind plans to shift policy in a more dovish direction.

The S&P 500 (GSPC) rose 0.13%, or 3.73 points, as of market close, ending in the green after languishing in the red for most of the session. The Dow (DJI) fell for a third straight day, ending the session down 0.08%, or 22.24 points, led by declines in shares of 3M (MMM). The Nasdaq (IXIC) rose 0.54%, or 43.35 points.

Stocks struggled to turn higher during much of regular trading Tuesday as markets continued to price in the prospect that the Federal Open Market Committee (FOMC) will shift monetary policy in a less accommodative direction amid strong economic data. As of Tuesday afternoon, markets priced in just a 3.8% probability of a 50 basis point rate cut after the FOMC’s July meeting, according to CME Group, along with a 96.2% chance of a less aggressive 25 basis point ease.

Fed Chair Jerome Powell gave remarks at the Federal Reserve Bank of Boston Tuesday morning in his last public appearance before he delivers his semi-annual Monetary Policy Report to Congress on Wednesday and Thursday. In the prepared statements, which centered on the topic of bank stress testing, Powell said that these assessments will “need to evolve in the years ahead to keep pace with the ever-changing financial system,” to test that banks will remain able “even in a severe downturn, to provide the credit that households and businesses depend on.”

Other members of the FOMC also spoke Tuesday. St. Louis Fed President James Bullard, the lone dissenter calling for a rate cut at the Fed’s June meeting, delivered welcoming remarks at the Official Monetary and Financial Institutions Forum Tuesday morning. Atlanta Fed President Raphael Bostic and Fed Vice Chair of Supervision Randal Quarles spoke Tuesday afternoon.

Treasuries declined across the curve Tuesday before the start of Powell’s testimony Wednesday. The yield on the 10-year note (TNX), which moves inversely to the price, rose 2.9 basis points to 2.063%.

STOCKS

Cisco (CSCOWealth Strength IndexAAPL is Extremely Up and trending Up) on Tuesday announced it planned to purchase Acacia Communications (ACIA), a Massachusetts-based semiconductor company and existing Cisco supplier. Cisco said it will pay $70.00 per Acacia share in cash, or about $2.6 billion on a fully diluted basis, net of cash and marketable securities. The deal represents an about 46% premium to Acacia’s closing price Monday, and is expected to close in the second half of Cisco’s 2020 fiscal year.

Cisco executive VP David Goeckeler said in a statement that the acquisition, “will allow us to build on the strength of our switching, routing and optical networking portfolio to address our customers’ most demanding requirements.”

PepsiCo (PEP) reported second-quarter results that topped consensus expectations, fueled by higher domestic sales in brands including Doritos, as well as the company’s healthier sparkling water offerings. Organic revenue in the company’s most lucrative North American Beverage unit grew 2% year-over-year, while Frito-Lay’s North American organic sales rose 5% over last year. Total company adjusted earnings of $1.54 per share for the quarter topped expectations by 4 cents, while quarterly revenue of $16.44 billion was slightly ahead of expectations.

Richard Branson’s space tourism company Virgin Galactic announced Tuesday that it is set to go public by way of a merger with Social Capital Hedosophia (IPOA), a public investment vehicle traded on the New York Stock Exchange. The deal, which produce the first publicly traded commercial human spaceflight firm, will result in Social Capital and Hedosophia shareholders owning up to about 49% of the combined company. The transaction is expected to close in the second half of 2019.

ECONOMY

Small business optimism slipped slightly in June, according to a report Tuesday from the National Federation of Independent Business (NFIB). The headline reading fell to 103.3 in June, falling 1.7 points from May’s reading but coming in above the 103.1 expected by consensus economists. While optimism remained at “historically high levels” in June, according to the NFIB, other sub-indices deteriorated. An index tracking uncertainty about future conditions among business owners rose 7 points to the highest level since March 2017.

“Last month, small business owners curbed spending, sales expectations and profits both fell, and the outlook for expansion dampened,” NFIB president and CEO Juanita Duggan said in a statement. “When you add difficulty finding qualified workers and harmful state level laws and regulations, you’re left with a volatile mix where uncertainty has increased to levels not seen in more than two years.”

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