The Dow plunged from its highs on Wednesday afternoon as the Federal Reserve's pessimistic outlook overshadowed Apple's historic valuation.
The Dow Jones was well on its way to a cautious gain on Wednesday, with its crown jewel – Apple – becoming the first stock to secure a $2 trillion market cap.
Unfortunately for bulls, Federal Reserve minutes put an unexpected damper on the party, causing stocks to recoil ahead of the closing bell.
All three of the major U.S. stock market indices tumbled from their session highs in late afternoon trading.
Here’s where they stood at 3:26 pm ET:
Wednesday was a light day for U.S. economic data. Crude inventories declined, though not as much as expected. Mortgage applications – a gauge of demand in the housing market – contracted following an interest rate spike last week.
Today’s late-session move was all about the release of the July FOMC minutes, which included some foreboding commentary from the central bank. Here’s what analysts had to say:
Most notably, the Fed warned about lasting disruptions to the U.S. economy:
Members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.
As for the pandemic itself, new daily coronavirus cases are trending lower in the United States. California – the state with the largest number of infections – is experiencing a remarkably sharp drop-off after finally clearing a data backlog.
Dow bulls revel in glass-half-full analysis, and a dramatic reduction in COVID-19 cases is a clear benefit to risk-sentiment. It bolsters hopes that the recovery can continue unfettered from a resurgence in lockdown restrictions.
Apple was the first U.S. company to hit a valuation of $1 trillion, and on Wednesday, it became the first to hit $2 trillion.
Given the rapidity of the move, analysts are already talking about $3 trillion.
Apple has been the dominant force in the Dow Jones recovery, which is why its latest push to $2 trillion is somewhat bittersweet.
Its present rally appears connected to the impending AAPL stock split, which has bulls anticipating a flood of retail inflows. For the overall Dow 30 index, the picture isn’t quite as rosy.
Because the Dow is price-weighted (not market cap-weighted like the S&P 500), Apple’s weighting will plummet after the four-for-one stock split on August 31.
That will make the tech sector an even smaller part of the Dow 30, which is cluttered by an aging group of multinationals from industries that comprise a fraction of their former role in the U.S. economy.
The Dow has already struggled to keep up with the S&P 500 and Nasdaq. If the tech boom continues, the gap is only going to widen.
Elsewhere in the index, Walmart slid 1.6%. Its incredible earnings beat has been offset by warnings of slowing consumer activity in the United States.
Nike led all Dow Jones components with a 1.9% gain. The move followed the release of extremely robust sales data in China.