Investors took profits from the market's recent run-up Thursday amid concerns about the inflationary implications of the Fed's debt purchase plans
U.S. stocks closed lower on profit taking Thursday. Investors were turned more cautious on concerns the Federal Reserve's action to inject $1 trillion into the financial system could spark inflation down the road.
On Thursday, the 30-stock Dow Jones industrial average finished lower by 85.78 points, or 1.15%, at 7,400.80. The broad S&P 500 index fell 10.31 points, or 1.30%, to 784.04. The tech-heavy Nasdaq composite index shed 7.74 points to 1,483.48. NYSE breadth was 16-15 negative, while Nasdaq breadth was 15-12 negative.
The dollar plunged Thursday on the Fed action, which caused gold and crude oil futures to surge. Oil's jump boosted stocks in the energy and materials sector, but weighed on airlines and
Bonds were lower after surging Wednesday.
There was little market reaction to reports the Philadelphia Fed index rose to -35.0 in March from -41.3 in the previous month, the February index of leading indicators fell 0.4% after rising 0.4% in January, and initial jobless claims fell 12,000 to 646,000 in the week ended Mar. 14.
Earlier Thursday, Oracle Corp.'s (ORCL) better than expected results had cheered the stock market, but word that FedEx Corp. (FDX) reported a large drop in third-quarter profit, and planned big layoffs, weighed on sentiment. An analyst downgrade of 3M Corp. (MMM) also dampened the mood on Wall Street.
Stocks rallied Wednesday on the Fed's announcement at the conclusion of its two-day policy meeting Wednesday that it would boost the size of its balance sheet by purchasing up to $300 billion of longer-term Treasury securities over the next six months to help improve conditions in private credit markets.
The Fed said it would also buy up to an additional $750 billion of agency mortgage-backed securities to bolster mortgage lending and housing markets. The move brings the Fed's total purchases of these securities to up to $1.25 trillion this year. The Fed also said it would increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.
"The Fed offered a kitchen sink of 'unconventional easing' measures yesterday, including commitments to purchase up to $1.15 trillion of Treasury and agency securities," wrpote Goldman Sachs economist Andrew Tilton on Thursday. "We view this as a positive step towards easing financial conditions and supporting the eventual stabilization and recovery of the economy."
The Fed will follow up Wednesday's bold money pumping plan when it kicks off the Term Asset-Backed Securities Loan Facility (TALF) on Thursday. This program has spurred optimism that it will revitalize consumer and business lending. The timing of the Fed's decision yesterday to buy U.S. Treasuries came as a surprise to some traders and analysts who had not expected the Fed to resort to such a move except if the TALF program proved less successful than anticipated, according to Reuters dispatch.
Under TALF, the Fed will lend to investors who want to buy bonds supported by pools of credit card receivables as well as car and small business loans. The program's first deadline for first round of funding bids is today. It is committed to fund $200 billion of loans, and could expand to $1 trillion.
Moving with unusual speed, the Democratic-controlled House of Representatives approved legislation to recoup most of the $165 million in bonuses paid to American International Group (AIG) employees. Responding to public and political outrage to the bonuses after the insurer received a government bailout up to $180 billion, lawmakers voted 328-93 for a bill to impose a 90% tax on bonuses for executives whose incomes exceed $250,000. The tax would apply to executives of any company that received at least $5 billion in government bailout money. Reuters said a different measure to recover the bonus money was expected to be considered by the Senate.
In economic news Thursday, U.S. initial jobless claims fell 12,000 to 646,000 in the week ended Mar. 14, vs. a revised 658,000 the week before (from 654,000 previously). And it compares to a relative high of 670,000 from the week ended February 21, which was the highest since October 1982. The four-week moving average edged up to 654,750 from 651,000. Continuing claims continued to climb, however, rising 185,000 to 5,473,000 in the week ended Mar. 7, from a revised 5,288,000 (was 5,317,000).
U.S. Philly Fed index improved to -35.0 in March from -41.3 in February. However, the components were mixed with more decliners than advancers. The employment index dropped to -52.0 versus -45.8 in February. New orders fell to -40.7 from -30.3. Prices paid declined to -31.3 from -13.7, and prices received fell to -32.6 from -27.8. The 6-month ahead business activity index slipped to 14.5 from 15.9, with capital expenditures eroding to -21.8 from -17.8 and employment little changed at -16.5 from -16.9. Data are being generally overlooked as the markets continue to equilibrate to the brave new Fed world.
Among companies in the news, Oracle posted $0.35 vs. $0.30 Q3 non-GAAP EPS on a 2% revenue rise. Wall Street was looking for EPS of $0.32. The company said it intends to initiate payment of a $0.05 per share quarterly cash dividend, or $0.20 per share annually.
FedEx stock fell in premarket trading after the company said its fiscal third-quarter profit tumbled 75% as severe weakness in the global economy offset the benefit of lower fuel prices. The AP reported the Memphis, Tenn.-based company said it earned $97 million, or $0.31 per share, compared with $393 million, or $1.26 a year earlier. Revenue fell 14% to $8.14 billion, from $9.44 billion. Thomson Reuters says analysts expected profit of $0.46 a share on revenue of $8.65 billion. To further reduce costs, FedEx plans to cut more jobs, reduce some workers' hours and trim air and truck capacity. The company expects fourth-quarter EPS of $0.45 to $0.75, compared with $1.45 a year ago. Analysts forecast EPS of $0.72.
Nike Inc. (NKE) posted $0.99 (excluding an impairment charge) vs. $0.92 third-quarter EPS despite a 2% revenue decline (excluding changes in currency exchange rates, revenue would have increased 2%). The company said worldwide future orders for Nike brand athletic footwear and apparel, scheduled for delivery from March, 2009 through July, 2009, is 10% lower than such orders reported for same period last year.
Citigroup (C) announced plans to execute a reverse stock split. Separately, the company announced that it has entered into agreements with all of its private preferred securities holders (liquidation value of $12.5 billion) to convert the private preferred into common shares.
Discover Financial Services (DFS) posted $0.25 vs. $0.50 first-quarter EPS from continuing operations on higher loan loss provisions, higher delinquencies and charge-offs. The company cut its quarterly dividend to $0.02 per share.