Stocks saw considerable volatility over the course of the trading day on Wednesday as traders digested news of the Federal Reserve's decision to extend "Operation Twist." Nonetheless, the markets largely held on to their recent gains.
The major averages bounced back and forth across the unchanged line before eventually ending the session mixed. While the Nasdaq crept up 0.69 points or less than a tenth of a percent to 2,930.45, the Dow edged down 12.94 points or 0.1 percent to 12,824.39 and the S&P 500 slipped 2.29 points or 0.2 percent to 1,355.69.
The choppy trading came after the Federal Reserve announced its decision to continue its program to extend the average maturity of its holdings of securities through the end of the year.
The program, known as "Operation Twist," involves replacing short-term securities in the Fed's bond portfolio with longer-term securities in an effort to push already low long-term interest rates even lower.
Rob Carnell, chief international economist at ING, said, "Most Fed watchers were expecting an extension of the Twist operation at this latest FOMC meeting. After all, the hurdle for QE3, we were previously told, was very high."
"Moreover, allowing the twist to expire, even if you believed it was essentially a useless policy (we did), was akin to a monetary tightening, albeit a tiny one," he added.
Speaking to reporters following the announcement, Fed Chairman Ben Bernanke said that the move was one of the ways the central bank could seek to boost the economy even though the most traditional policy action, the lowering of interest rates, is essentially not available.
Bernanke also noted that like many economic analysts and observers, their projections about the pace of the economic recovery had proved too optimistic.
"The committee is prepared to take further actions if appropriate," to promote the recovery and provide for "sustainable improvement in labor market conditions," he added.
In corporate news, shares of Procter & Gamble (PG) fell by 2.9 percent after the consumer products giant warned of weaker than previously expected fourth quarter results.
P&G attributed the downwardly revised guidance to slower than expected market growth rates, market share softness in developed regions and negative impacts from foreign exchange rate changes.
Adobe Systems (ADBE) also moved to the downside after the software developer reported better than expected second quarter results but provided disappointing guidance.
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday, benefiting from the overnight rally on Wall Street. Japan's Nikkei 225 Index surged up by 1.1 percent, while Hong Kong's Hang Seng Index rose by 0.5 percent.
The major European markets also moved to the upside over the course of the trading day. The U.K.'s FTSE 100 Index rose by 0.6 percent, the German DAX Index advanced by 0.5 percent, and the French CAC 40 Index edged up by 0.3 percent.
In the bond market, treasuries saw considerable volatility following the Fed announcement, eventually ending the day modestly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.2 basis points to 1.642 percent.
While most of the major sectors ended the day showing only modest moves, significant weakness was visible among trucking stocks. The Dow Jones Trucking Index fell by 1.3 percent after ending the previous session at its best closing level in well over a month.
Utilities stocks also came under pressure on the day, dragging the Dow Jones Utilities Average down by 1.2 percent. Gold, natural gas, and railroad stocks also saw moderate weakness.
Meanwhile, airline stocks moved sharply higher over the course of the trading day, driving the NYSE Arca Airline Index up by 1.8 percent. With the gain, the index ended the session at its best closing level in four months.
Semiconductor, computer hardware, and networking stocks also saw some strength on the day, contributing to the slightly higher close by the tech-heavy Nasdaq.
Reaction to the Fed announcement may continue to impact the markets on Thursday, although traders are also likely to keep an eye on reports on initial jobless claims, existing home sales, and Philadelphia-area manufacturing activity.
On the earnings front, Bed Bath & Beyond (BBBY), Micron Technology (MU), and Red Hat (RHT) are among the companies releasing their quarterly results after the close of today's trading.
by RTT Staff Writer
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