U.S. stocks finished mixed Wednesday as price gains fueled by the Federal Reserve's decision to leave interest rates unchanged gave way to late profit taking, particularly among financials and techs.
Earlier, the market had been higher as investors breathed a sigh of relief that the Fed had opted to keep interest rates low for an "extended period," and that it saw signs of a pick-up in the economy.
On Wednesday, the 30-stock Dow Jones industrial average finished higher by 30.23 points, or 0.31%, at 9,802.14. The broad Standard & Poor's 500-stock index was up 1.09 points, or 0.10%, at 1,046.50. The tech-heavy Nasdaq composite index lost 1.80 points, or 0.09%, to 2,055.52.
On the New York Stock Exchange, 16 stocks were higher in price for every 14 that declined. Breadth on the Nasdaq was 16-10 negative.
Treasuries fell. A weaker dollar pushed gold higher. Oil futures rose.
In the Nov. 4 FOMC statement, the Fed said information received since its Sept. 22-23 meeting "suggests that economic activity has continued to pick up."
The FOMC added that conditions in financial markets were roughly unchanged, on balance, since the last meeting. "Activity in the housing sector has increased over recent months," while "[h]ousehold spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit." The Fed noted that businesses are still cutting back on fixed investment and staffing, though at a slower pace.
The FOMC said it continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period, echoing language from the statement from its Sept. 22-23 meeting.
Regarding inflation, the FOMC said that with substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, it expects that inflation will remain subdued for some time.
"Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability," the Fed said.
The Fed said it will "continue to employ a wide range of tools to promote economic recovery and to preserve price stability." In addition to ultra-low interest rates, the Fed reiterated its program to purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. One new wrinkle: The amount of agency debt purchases was lower than the previously announced maximum of $200 billion, "consistent with the recent path of purchases and reflect[ing] the limited availability of agency debt."
The FOMC said it will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.
The vote was unanimous among the 10 FOMC members.
"As we expected, the FOMC kept its central message unchanged, noting that 'economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period', said Bank of America Merrill Lynch economist Drew Matus in a note Wednesday. "In our view, they remain a long way from hiking."
"The statement produced some nuanced shifts that served to increase the committee's policy flexibility and a to provide a more detailed rationale for continued accommodation," wrote Action Economics global market strategist Michael Wallace. "To secure a unanimous vote they even threw the [inflation] hawks a small bone by reducing the purchase target of agency debt to $175 billion from $200 billion previously."
Also Wednesday, the market also weighed reports that the Institute for Supply Management's October nonmanufacturing index fell to 50.6 from 50.9 in September; and that ADP's report on private employment showed payrolls falling 203,000 in October, a bit more than the 196,000 expected. To some, data elevated the downside risk for Friday's U.S. employment report for October.
Investors have grown fearful that the economic rebound they've been betting on over the past eight months will be fleeting, considering that job losses remain high and consumers still aren't spending freely. Stocks have zigzagged over the past few weeks amid the heightened uncertainty.
Stocks ended mostly higher Tuesday, after swinging between gains and losses, as an increase in commodity prices and corporate dealmaking abated some of investors concerns about the economy. The Dow Jones industrial average slipped 17 points, after rising 77 on Monday, while broader indexes rose modestly.
On Wednesday, the ISM said its U.S. non-manufacturing index dipped to 50.6 in November, from 50.9 in September. The business activity index was essentially unchanged at 55.2 from 55.1. The employment component fell to 41.1 from 44.3. New orders inched up to 55.6 from 54.2. Prices paid rose to 53.0 after diving over 14 points in September to 48.8. The composite ISM manufacturing and non-manufacturing index was steady at 51.2 from 51.1.
"That's not quite as good as expected," said Action Economics analysts in a website posting Wednesday. "[N]evertheless it's still well off of last November's all time low 37.4" reading, analysts said.
Also Wednesday, ADP reported that private payrolls fell 203,000 in October, from a revised drop of 227,000 in September (from -254,000). The goods producing sector lost 117,000 jobs, while manufacturing saw a 65,000 decline. The service sector lost 86,000 jobs.
Investors eager for more information on the battered labor market will get data on weekly jobless claims on Thursday and the government's employment report for October on Friday.
The latest earnings reports were mostly upbeat. Comcast (CMCSA) reported a 22% increase in its third-quarter earnings. The nation's largest cable TV operator also said it sees signs the economy is improving.
Media conglomerate Time Warner Inc.) reported a 38% drop in third-quarter profit, but the results beat expectations. The company also boosted its full-year earnings forecast.
Pulte Homes' (PHM) third-quarter loss widened, but the homebuilder said it has continued to see stabilization in the housing market.
Oilfield services giant Baker Hughes (BHI) reported a third quarter profit of 18 cents per share, vs. a profit of $1.39 a year earlier, as revenues dropped 26%.
Marsh & McLennan Cos. (MMC) posted a third-quarter profit of 41 cents per share, vs. a loss of 2 cents one year earlier, as lower expenses offset a 10% revenue decline at the provider of risk and insurance services.
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