Stocks Close Modestly Lower Following Fed Announcement - U.S. Commentary

(RTTNews) - Stocks saw considerable volatility following the Federal Reserve's monetary policy meeting on Wednesday but maintained a negative bias before closing modestly lower. The losses on the day partly offset the rally seen in the previous session.

The major averages ended the day in the red but well off their lows for the session. The Dow slipped 31.44 points or 0.2 percent to 16,974.31, the Nasdaq dipped 15.07 points or 0.3 percent to 4,549.23 and the S&P 500 edged down 2.75 points or 0.1 percent to 1,982.30.

The markets experienced choppy trading for much of the session as traders awaited the statement from the Fed following its two-day policy meeting.

As was widely anticipated, the central bank announced the conclusion of its asset purchase program, reducing its purchases of mortgage-backed securities and longer-term Treasury securities to zero from $15 billion.

The Fed also repeated its pledge to keep interest rates at record lows for a "considerable time" but said rates may rise sooner than markets expect if the economic recovery continues to gather steam.

In a more surprising move, the Fed said labor market indicators suggest that "underutilization of labor resources is gradually diminishing" after previously warning about persistent slack in the labor market. The central bank also said the likelihood of inflation running persistently below 2 percent has diminished even though inflation is likely to be held down by lower energy prices and other factors in the near term.

Minneapolis Fed President Narayana Kocherlakota was the lone dissenter, suggesting that the Fed should commit to low rates until the inflation outlook has returned to 2 percent and continue the asset purchase program at its current level.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "On balance, the Fed believes it is getting closer to meeting the full employment side of its mandate, while it is not necessarily convinced it is losing ground in meeting the price stability side of its mandate."

"We would say that was, if anything, a slightly hawkish shift," he added. "It's also perhaps telling that it was the dovish Narayana Kocherlakota who dissented at this vote, whereas in previous FOMC meetings this year it is the hawks who dissented."

Among individual stocks, shares of Facebook (FB) fell sharply on the day after the social media giant reported better than expected third quarter results but forecast slower revenue growth in the fourth quarter and announced an increase in spending in 2015.

Chocolate maker Hershey (HSY) also moved to the downside after reporting third quarter earnings that missed analyst estimates and providing disappointing guidance.

On the other hand, shares of Goodyear Tire (GT) moved sharply higher after the tire maker reported much better than expected third quarter earnings.

Sector News

Gold stocks saw considerable weakness throughout much of the session, dragging the NYSE Arca Gold Bugs Index down by 4.1 percent. With the steep drop on the day, the index fell to its worst closing level in nearly six years.

The weakness among gold stocks came amid a decrease by the price of the precious metal, with gold for December delivery falling $4.50 to $1,224.90 an ounce before seeing further downside in electronic trading.

Significant weakness was also visible among steel stocks, as reflected by the 1.7 percent loss posted by the NYSE Arca Steel Index. Cliffs Natural Resources (CLF) and Allegheny Technologies (ATI) posted notable losses.

Housing stocks also came under pressure on the day, dragging the Philadelphia Housing Sector Index down by 1.5 percent. Meritage Homes (MTH) led the sector lower after reporting weaker than expected third quarter results.

Internet and chemical stocks also moved to the downside on the day, while most of the other major sectors showed more modest moves.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday following the overnight rally on Wall Street. Japan's Nikkei 225 Index surged up by 1.5 percent, while Hong Kong's Hang Seng Index jumped by 1.3 percent.

Meanwhile, the major European markets ended the day mixed. While the French CAC 40 Index edged down by 0.1 percent, the German DAX Index ticked up by 0.2 percent and the U.K.'s FTSE 100 Index advanced by 0.8 percent.

In the bond market, treasuries extended their recent downward trend but closed well off their worst levels. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 3.9 basis points to 2.323.

Looking Ahead

While reaction to the Fed announcement may continue to impact trading on Thursday, traders are also likely to keep an eye on reports on third quarter GDP and weekly jobless claims.

On the earnings front, Alcatel-Lucent (ALU), ConocoPhillips (COP), Kellogg (K), and MasterCard (MA) are among the companies due to report their quarterly results before the start of trading on Thursday.