Wednesday reminded investors of how much power the Federal Reserve wields in guiding the stock market. Yet the Fed's pronouncement failed to lift the veil of uncertainty about the future course of interest rates, and that in turn led stocks lower for the remainder of the day. Among some of the worst performers on Wednesday were U.S. Steel (NYSE:X), and Tupperware Brands (NYSE:TUP).
In December the Fed signaled it plans to gradually raise the rate this year, probably in four stages starting in March. But its policy statement on Wednesday showed the Fed is less confident about the economy. This is not surprising given the big downturn in U.S. and global equity markets . The federal funds rate affects short-term rates on some corporate loans and consumer credit cards. 50 percent of Business would be affected by higher interest rates, primarily by increasing the cost of debt for new growth opportunities.
It is obvious that the oil prices in combination with the interest rate policy of the Fed will be a strong negative impact on employment in regions where is a large concentration of the energy industry. In a letter to the Texas Workforce Commission, U.S. Steel Tubular Products Inc. said it plans to lay off 679 employees at its plant in the small town of Lone Star, Texas, near the Louisiana and Arkansas border. The cuts will begin March 13 and continue into May. Lone Star has a population of only about 1,580 people, according to 2010 census data. The company did not disclose the total number of workers at the plant. U.S. Steel, which is based in Pittsburgh, has already idled hundreds of jobs in Texas amid the ongoing oil slump. Last spring, the company reduced operations in Houston and Texas, affecting more than 200 employees. That same week, 1,404 U.S. Steel employees were notified of potential cuts, according to the Pittsburgh Business Times. All the Texas cuts, including those outlined in the most recent announcement, were attributed to a decline in tubular market conditions, which is impacting demand for the company’s products.
Axiom Capital’s Gordon Johnson said thathe see another year of likely earnings revisions lower in 2016 (albeit likely delayed, similar to U.S. Steel’s experience in 2015). Given the violent move lower in U.S. Steel’s stock that 2015’s sharp revisions lower to forward guidance caused, we maintain our SELL rating and negative bias.
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