After showing a lack of direction for much of the session, stocks ended Wednesday's trading mostly lower following the Federal Reserve's monetary policy announcement. Selling pressure was relatively subdued, however, limiting the downside for the markets.
The major averages closed in negative territory, adding to the losses posted in the two previous sessions. The Dow fell 32.55 points or 0.3 percent at 12,976.13, the Nasdaq dropped 19.31 points or 0.7 percent to 2,920.21 and the S&P 500 slid 4.00 points or 0.3 percent to 1,375.32.
Stocks saw considerable volatility following the Fed announcement but ended the day in the red as the central bank offered a sobering assessment of the U.S economy but refrained from revealing any new stimulus measures.
The Fed noted that economic activity decelerated somewhat over the first half of the year and predicted that economic growth would remain moderate over the coming quarters.
Subsequently, the central bank kept interest rates unchanged at near-zero levels and reiterated that rates are likely to remain at exceptionally low levels at least through late 2014.
While the Fed also said it will closely monitor incoming data and will provide additional accommodation as needed, it did not announce any new measures following last month's extension of Operation Twist.
In failing to take aggressive action to prop up the slowing economy, analysts say the Fed is preserving ammunition to combat potential headwinds that may arise out of Europe's sovereign debt crisis.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Despite acknowledging the evident slowdown in U.S. economic growth, the Fed declined to take any additional action at the conclusion of the two-day FOMC meeting."
"It did, however, offer the slightest of hints that it might be prepared to do more at the next meeting in mid-September," he added.
As a result of the focus on the Fed, traders largely shrugged off a mixed batch of U.S. economic data that was released earlier in the day.
While payroll processor ADP reported much stronger than expected private sector job growth in the month of July, the Institute for Supply Management said its manufacturing index continued to point to a contraction in manufacturing activity for the month.
After seeing some weakness early in the day, brokerage stocks accelerated to the downside following the downside. The NYSE Arca Broker/Dealer Index tumbled by 3.6 percent, ending the session at its worst closing level in well over seven months.
Knight Capital Group (KCG: Quote) posted a particularly steep loss, plunging by 32.8 percent after revealing that a "technology issue" at its market-making unit affected the routing of around 150 stocks on the NYSE.
Trucking stocks also moved sharply lower on the day, dragging the Dow Jones Trucking Index down by 3.2 percent to an eight-month closing low. Con-Way (CNW: Quote) helped to lead the trucking sector lower, falling by 17 percent after reporting weaker than expected second quarter earnings.
Significant weakness was also visible among electronic storage stocks, as reflected by the 2.7 percent loss being posted by the NYSE Arca Disk Drive Index. Quantum (QTM: Quote) turned in one of the storage sector's worst performances despite reporting first quarter results that matched analyst estimates.
Airline, biotechnology, and gold stocks also came under pressure on the day, while oil service stocks moved higher along with the price of crude oil.
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Wednesday. While Japan's Nikkei 225 Index ended the day down by 0.6 percent, Hong Kong's Hang Seng Index edged up by 0.1 percent.
The major European markets also ended the day mixed. The German DAX Index fell by 0.3 percent, while the French CAC 40 Index advanced by 0.9 percent and the U.K.'s FTSE 100 Index surged up by 1.4 percent.
In the bond market, treasuries saw considerable volatility following the Fed announcement, ending the day notably lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.7 basis points to 1.539 percent.
With the Fed meeting now in the rear-view mirror, traders will turn their attention to the European Central Bank's monetary policy announcement on Thursday.
Following ECB President Mario Draghi's recent remarks promising to do whatever is necessary to support the beleaguered eurozone, the bank is widely expected to announce further stimulus measures.
The news out of Europe is likely to overshadow the release of U.S. reports on weekly jobless claims and factory orders.
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by RTT Staff Writer
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