Wednesday, December 15, 2010

Markets close flat as Fed sparks late-day sell-off

NEW YORK: Stocks cut gains to end mostly flat after a late-day sell-off on Tuesday, Dec 14 as yet another cautious statement from the Federal Reserve on the economy offset strong retail sales data for November.

With trading volume still anemic, the afternoon's drop could be a sign that the major indexes have hit the upper range of a rally that has propelled them all to recent two-year highs.

The Fed, in a policy statement after its last scheduled meeting of 2010, said the economic recovery was still too slow to bring down unemployment and reaffirmed its commitment to buy $600 million in government bonds. The move pushed bond yields sharply higher and pressured financial shares, which are hurt by higher rates.

"I'm slightly disappointed that the (Fed) doesn't see the world in the same light that investors do," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.

The PHLX KBW Bank Index .BKX lost 1.5 percent. Recent winners, such as Regions Financial (RF.N) and Marshall & Ilsley (MI.N), led losers, falling 5.3 percent and 3.4 percent, respectively.

U.S. retail sales rose for a fifth straight month in November, pointing to a firm rebound in consumer spending, which accounts for roughly two-thirds of the U.S. economy. But shares of Best Buy Co Inc (BBY.N) plummeted after the top U.S. electronics retailer posted a third-quarter profit that missed expectations and cut its full-year profit view, denting optimism over the sector.

Best Buy stock sank 14.8 percent to $35.52 and pressured the S&P retail index .RLX, which fell 0.5 percent.

"The data was encouraging overall and shows that retailers are driving traffic into the stores," said Liam Dalton president of Axiom Capital Management Inc in New York, which oversees about $1.4 billion. "But Best Buy is a reminder that there's a lot of discounting and market share being pulled in several directions, meaning it could still be a choppy Christmas season."

The Dow Jones industrial average .DJI was up 47.98 points, or 0.42 percent, at 11,476.62. The Standard & Poor's 500 Index .SPX was up 1.13 points, or 0.09 percent, at 1,241.59. The Nasdaq Composite Index .IXIC was up 2.81 points, or 0.11 percent, at 2,627.72.

Financial stocks were the top losers on Tuesday, with the group .GSPF down 0.9 percent, the biggest drop among S&P sectors. Dow component JPMorgan Chase & Co (JPM.N) lost 1.7 percent to $40.79.

Dow component General Electric Co (GE.N) expects its businesses to show solid earnings growth in 2011, with revenue flat to up 5 percent, officials with the largest U.S. conglomerate told investors. The stock rose 0.4 percent to $17.69.

Healthcare stocks were boosted by company news. Medical device maker C.R. Bard Inc (BCR.N) rose 4.1 percent to $89.56 after a strong 2011 profit growth outlook, while brokerages gave bullish marks to companies including Amgen (AMGN.O) and Mylan Inc (MYL.O). Amgen rose 4.9 percent to $56.76 and Mylan added 4.3 percent to $20.68.

President Barack Obama's tax plan got a boost on Tuesday when a top Democrat in the House of Representatives, where the plan faces its stiffest resistance, said there were "compelling reasons" to back it. While passage of the bill, which extends all Bush-era tax rates, is expected, many investors are waiting for confirmation of its passage.




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