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US stocks fall as investors reel from a possible June Fed rate hike

US stocks close flat-to-lower after the Federal Reserve raises the stakes for a June rate hike and oil prices slump late in the session

janetyellen.jpg
Minutes take the mask off Yellen's April comments

US stocks closed flat-to-lower on Wednesday after the Federal Reserve raised the stakes for a June rate hike and oil prices slumped late in the session.

Although a more than 50% chance of a hike was already expected in September, the prospect of higher credit costs three months sooner spooked markets. The Fed's statement after the decision in April to leave rates unchanged ran against the grain of what the minutes, released earlier, suggest in terms of the timing of a rate hike.

The bellwether S&P 500 index which had been firmer ahead of the release of the Fed's April meeting minutes, went south, before ending flat at 2,047. Bank stocks dominated the gainers on the broad ticker as well as the Dow Jones Industrial Average.

The S&P Midcap 400 was down 0.2% at 1,436. But small-caps managed to gain on the day. The S&P Smallcap 600 was up 0.5% at 676, led by takeover target Anderson's Inc (NYSE:ANDE) while the broader Russell 2000 was up 0.5% at 1,102.

But late in the session, The Andersons, the US agribusiness, rejected two unsolicited approaches from HC2 Holdings on the grounds they "undervalue" the business. HC2 revealed on Tuesday that it had made a $37-a-share cash approach to the Andersons, whose diverse services range from picking up grain from farmers to leasing rail cars.

The US oil benchmark West Texas Intermediate ended down 1% at $47.81. Earlier, oil prices had risen about 1%, hitting a fresh October 2015 high, as the market focused on large drawdowns in US refined fuel inventories and ignored a surprise build in crude stockpiles. US crude inventories rose 1.3mln barrels in the week to May 13, compared with analysts' expectations for a decrease of 2.8mln barrels and a 1.1mln-barrel drawdown reported on Tuesday by a trade group, the American Petroleum Institute.


Midsession

Wall Street shares hold onto gains at midsession on Wednesday, as investors take positions ahead of key Fed monetary meeting minutes released at 1400 ET.

The general upside, however, was thanks to higher oil prices. The US benchmark West Texas Intermediate was up 1.1% at $48.83 - having earlier scaled $48.95 - its highest level since early October.

The Federal Open Market Committee will release its April meeting minutes and many analysts are concerned the contents could be more hawkish than the official statement that followed April's meeting. A case of the devil's in the detail.

That anxiety was fuelled by San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart, who said the Fed could still raise rates two or three times this year, according to a Reuters report.

The bellwether S&P 500 index was clutching onto gains of 0.23%, at 2,051.

But the rate fever wasn't all bad news for the bourse. Bank stocks, seen benefiting from higher interest rates, led gains on Wall Street while the high dividend payers like utilities and consumer Staples weighed on the S&P 500 the most.

Even smaller banks were among the top risers. With the S&P Midcap 400 up 0.23% at 1,442, among the top gainers were Bank of the Ozarks (NASDAQ:OZRK), up 4.50% at $37.65, Stifel Financial Corp (NYSE:SF) up 4.2% at $35.22 and International Bancshares (NASDAQ:IBOC) up 3.97% at $26.22.

The S&P Smallcap 600 was up 0.57% at 676 and led by agricultural products group Andersons (NASDAQ:ANDE) up 28.22% at $33.26.

According to a Reuters report, HC2 Holdings (NYSEMKT:HCHC) has made an unsolicited bid to acquire 100% stake in Andersons for $1.04bn. HC2 has offered $37 per share, which represents a 42% premium to Andersons' closing stock price on Tuesday.

The offer also includes the assumption of $402mln of Andersons’ debt. In an alternative transaction, HC2’s chief executive officer Philip Falcone proposed to buy Andersons’ rail unit and part of its grain business for $950mln. In that case, HC2 would provide stalking horse bids for each of the remaining assets of Andersons.

Another top riser was banking group First Bancorp (NYSE:FBP), up 5.36% at $3.93.


Open

Investors are sitting on their hands ahead of today's announcement from the Federal Open Market Committee (FOMC), the policy-making group of the Federal Reserve.

The blue-chip tracker, the S&P 500, was a couple of points lighter at 2,046, but the mid-cap gauge, the S&P 400, was up a point at 1,440, while the Russell 2,000 index, which measures the performance of small caps, was more or less unchanged at 1,098.

Incontact Inc (NASDAQ:SAAS), the Cloud-based contact center software developer, has agreed to be taken over NICE Systems (NASDAQ:NICE), the Big Data specialist.

Shares in the former rose more than 50% to $13.885 on the news that the inContact board had succumbed to a $14 a share cash offer from NICE.

In other mergers & acquisitions news, mobile commerce firm NXT-ID Inc (NASDAQ:NXTD) surged 45% to 48 cents as it said it would acquire private company Logicmark for $20mln in cash.

LogicMark is a provider of unmonitored personal emergency response devices.


Pre-open

Investors are understandably adopting a cautious posture ahead of the release of the interest rate decision from the central bank's policy makers today.

“It’s been some time coming but it seems the markets are finally waking up to the idea that the Fed could raise interest rates before the end of the year, even more than once,” suggested Craig Erlam at forex trading platform operator OANDA.

Erlam is not suggesting the Federal Open Market Committee (FOMC) will announce a surprise hike today, but draws attention to recent comments from Federal bank presidents John Williams, Dennis Lockhart and Robert Kaplan (none of whom have a vote on the FOMC this year), all of which appeared to be “on message” with the idea of an increase before the year is out.

“The FOMC minutes, released later on today, will now be even more important as investors look for further signs that future rate hikes have been incorrectly priced by the markets and that June is actually a live meeting. Until yesterday, the implied probability of a hike was only 4% with investors absolutely convinced that this was off the table. Already this has risen to 15% and the timing of the next hike brought forward to November, from December. If the minutes echo the comments from Fed officials as of late, we could see the markets come even more in line with what the Fed’s plans,” Erlam suggested.

With that uncertainty in mind, spread betting punters are expecting the S&P 500 to add to yesterday's heavy losses, and open a couple of points down from last night's close of 2,047.

The Dow Jones average is expected to just about keep its head above 17,500, opening at around 17,505, down 25 points.

On the corporate front, a number of heavy hitters are scheduled to update the market today, including clothes seller American Eagle Outfitters (NYSE:AEO), networking giant Cisco Systems Inc (NASDAQ:SCSO) and customer relationship management systems software specialist Salesforce.com Inc (NYSE:CRM), all of which are expected to spill the beans after the market closes.

Already out on the wire are results from retailers Staples Inc (NASDAQ:SPLS), Lowe's Companies Inc (NYSE:LOW) and Target Corporation (NYSE:TGT). The first two are both firmer in pre-market trading.

Later today there will be the weekly update on crude oil inventories that could stop crude's recent rally in its tracks or add more fuel to the fire.

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