US stocks slips after Fed statement
An optimistic statement from the US Federal Reserve sent the dollar up and gold prices down as traders prepared for rising interest rates.
Major US stock indexes ended with a slight loss after the Fed confirmed that it was shutting down a bond-buying programme because the economy no longer needs as much help.
At the end of a two-day meeting, the Fed said that it had ended its bond-buying programme, known as quantitative easing, or QE for short, as a result of “underlying strength in the broader economy”.
“I was pleasantly surprised,” said Brad Sorenson, director of market and sector analysis at Charles Schwab. Mr Sorenson liked the statement’s optimistic tone and was happy the Fed did not extend its stimulus effort. Launching another round of bond purchases would have raised worries about the economy and backfired, he said.
“They don’t have a lot of bullets left to shoot at any problems,” he said. “The effectiveness of quantitative easing diminishes each time it’s done.”
The Standard & Poor’s 500 index fell 2.75 points, or 0.1%, to 1,982.30. The Dow Jones industrial average fell 31.44 points, or 0.2%, to 16,974.31. The Nasdaq composite fell 15.07 points, or 0.3%, to 4,549.23.
The S&P 500 index, the benchmark for most investment funds, is now up 0.5% for the month of October. It had slumped as much as 6% on October 15 as a host of concerns sent markets tumbling.
Marty Leclerc, chief investment officer at Barrack Yard Advisers, said the market should be able to handle an interest rate increase from near zero to something slightly higher. The Fed has made clear that it plans to move carefully.
“The fact is, easy money is still here,” he said. “They’re not taking away the punch bowl, they’re just dialling down the amount of booze in the punch.”
The Fed restated a pledge to keep its benchmark short-term rate near zero, but it also pointed to signs of strength in the job market. Most economists think the Fed will not raise that rate until the middle of next year.
“Today’s statement shows the Fed believes the economy is nearing the final stages of full recovery,” said Chris Rupkey, chief financial economist at the Bank of Tokyo Mitsubishi, in a note to clients. “They halted the QE purchases today, and tomorrow, rate hikes are coming. Bet on it.”
Solid earnings from Caterpillar, Microsoft and other big companies have helped the stock market recover from its slide earlier this month. Nearly half of the big companies in the S&P 500 index have turned in third-quarter results, and more than seven out of 10 have cleared analysts’ targets, according to S&P Capital IQ. Earnings are on track to rise 6% for the third quarter.
Videogame maker Electronic Arts turned in earnings that topped analysts’ estimates and raised its profit projections for the year. Sales of FIFA 14 and Titanfall helped lift revenue.
Facebook lost 6% after its chief financial officer said that expenses for the social networking giant could increase by as much as 75% next year as it ramps up spending on investments.
