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Stocks Close Modestly Lower On Fed Statement, GDP Data - U.S. Commentary


After showing a lack of direction throughout much of the trading day on Wednesday, stocks moved modestly lower in the latter part of the session following the Federal Reserve's latest monetary policy announcement.

The major averages climbed off their lows going into the close but still ended the day in the red. The Dow fell 44.00 points or 0.3 percent to 13,910.42, the Nasdaq dipped 11.35 points or 0.4 percent to 3,142.31 and the S&P 500 slid 5.88 points or 0.4 percent to 1,501.96.

The modest weakness that emerged on Wall Street came after the Federal Reserve said growth in economic activity has paused in recent months due largely to weather-related disruptions and other transitory factors.

The Fed subsequently announced its widely expected decision to keep interest rates unchanged and maintain its asset purchase program as part an effort to stimulate the economy.

The central bank also said it expects to keep its target for the federal funds rate in an exceptionally low range as long as the unemployment rate remains above 6.5 percent.

The comments from the Fed were backed up by a Commerce Department report showing that GDP unexpectedly fell by 0.1 percent in the fourth quarter after surging up by 3.1 percent in the third quarter.

The modest drop came as a surprise to economists, who had expected GDP to increase by about 1.0 percent. The decrease also reflected the first drop in GDP since the second quarter of 2009.

However, economists suggested that the data was not as bad as it appeared, noting that the drop in GDP was largely due to a substantial decrease in defense spending.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Frankly, this is the best looking contraction in GDP you'll ever see."

Upbeat jobs data also helped to offset the negative sentiment generated by the GDP report, with payroll processor ADP reporting a bigger than expected increase in private sector employment in the month of January.

ADP said private sector employment increased by 192,000 jobs in January compared to economist estimates for an increase of about 172,000 jobs.

Despite the pullback by the broader markets, Amazon (AMZN) held on to a strong gain even though the online retailer reported weaker than expected fourth quarter results. Traders responded positively to the company's increase in sales and North American operating margin.

Aerospace giant Boeing (BA) also ended the day higher after reporting fourth quarter earnings that fell year-over-year but came in above analyst estimates. The company also said its 2013 guidance assumes no significant financial impact from the grounding of its 787 Dreamliner jet.

Sector News

Networking stocks showed a substantial move to the downside over the course of the trading day, dragging the NYSE Arca Networking Index down by 2 percent. With the loss, the index pulled back further off the eight-month closing high it set last Friday.

Alcatel-Lucent (ALU) helped to lead the networking sector lower, falling by 8.2 percent, while Infinera (INFN) and Ciena (CIEN) also posted notable losses.

Considerable weakness was also visible among transportation stocks, as reflected by the 1.5 percent loss posted by the Dow Jones Transportation Average. Railroad stocks turned in some of the sector's worst performances on the day.

Housing, steel, and biotechnology stocks also came under pressure as the day progressed, contributing to the pullback by the broader markets.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index surged up by 2.3 percent, while Hong Kong's Hang Seng Index advanced by 0.7 percent.

Meanwhile, the major European markets moved to the downside on the day. While the U.K.'s FTSE 100 Index dipped by 0.3 percent, the German DAX Index and the French CAC 40 Index both ended the day down by 0.5 percent.

In the bond market, treasuries ended the day modestly lower but well off their worst levels of the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged up by 1.8 basis points to 2.006 percent after reaching a high of 2.037 percent.

Looking Ahead

Earnings news is likely to be in focus on Thursday, with Facebook (FB), Qualcomm (QCOM), Electronic Arts (EA) and ConocoPhillips (COP) among the companies releasing their quarterly results after the close of today's trading.

Additionally, Aetna (AET), Dow Chemical (DOW), MasterCard (MA), Hershey (HSY), UPS (UPS), and Whirlpool (WHR) are among the slew of companies due to report their quarterly results before the start of trading on Thursday.

Traders are also likely to keep an eye on reports on weekly jobless claims, personal income and spending, and Chicago-area business activity.

Nonetheless, trading activity may be somewhat subdued ahead of the release of the Labor Department's closely watched monthly jobs report on Friday.

by RTTNews Staff Writer

For comments and feedback: editorial@rttnews.com

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