Negative Reaction To Fed Statement Weighs On Wall Street - U.S. Commentary

(RTTNews) - After drifting lower over the course of morning trading on Wednesday, stocks saw some further downside following the Federal Reserve's monetary policy announcement. A negative reaction to the Fed's statement weighed on the markets, although selling pressure remained relatively subdued.

The major averages climbed off their worst levels of the day going into the close but remained stuck firmly in the red. The Dow fell 61.59 points or 0.4 percent to 15,618.76, the Nasdaq slid 21.72 points or 0.6 percent to 3,930.62 and the S&P 500 dropped 8.64 points or 0.5 percent to 1,763.31.

With the decreases on the day, the Dow and the S&P 500 pulled back off the record closing highs set in the previous session.

The lower close on Wall Street came on the heels of the release of the Fed's latest announcement regarding monetary policy.

While the Fed maintained the pace of its asset purchases at $85 billion a month as was widely expected, the accompanying statement was seen as less dovish than anticipated.

The statement from the Fed's monetary policy committee largely excluded any reference to the recent government shutdown and omitted previous remarks suggesting that tightening financial conditions could slow the pace of improvement in the economy and labor market.

Paul Ashworth, Chief U.S. Economist at Capital Economics, suggested that it is difficult to interpret the two key omissions, particularly in light of the Fed's flip-flopping in recent months.

"If officials are trying to downplay the impact of the shutdown and are happier with the level of long-term interest rates, then perhaps a December taper isn't quite as out of the question as we had previously thought," Ashworth said.

He added, "We still think sometime early next year is the most likely outcome, but the balance of risks just shifted a little."

Kansas City Fed President Esther George dissented once again, expressing concerns that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances.

Ahead of the Fed statement, a pair of economic reports seemed to reinforce expectations that the central bank will keep its stimulus program intact for the foreseeable future.

Payroll processor ADP released a report showing that U.S. private sector employment rose by less than expected in the month of October, reflecting the impact of the government shutdown.

ADP said the private sector added 130,000 jobs in October following a downwardly revised increase of 145,000 jobs in September. Economists had expected an increase of about 150,000 jobs.

A separate report from the Labor Department showed a modest increase in consumer prices that matched economist estimates, suggesting that inflation pressure remains subdued.

Despite the pullback by the broader markets, shares of General Motors (GM) rose by 3.2 percent after the auto giant reported third quarter earnings that fell year-over-year but came in above analyst estimates.

Sector News

Biotechnology stocks turned in some of the market's worst performances on the day, dragging the NYSE Arca Biotechnology Index down by 1.7 percent.

Within the biotech sector, Nektar Therapeutics (NKTR), Vertex Pharmaceuticals (VRTX), and Incyte (INCY) posted notable losses.

Considerable weakness was also visible among housing stocks, as reflected by the 1.6 percent loss posted by the Philadelphia Housing Sector Index. With the drop, the index pulled back off the four-month closing high set on Tuesday.

Tobacco, internet, and railroad stocks also came under pressure on the day, while gold stocks turned in a strong performance amid a modest increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably higher during trading on Wednesday. Japan's Nikkei 225 Index jumped by 1.2 percent, while Hong Kong's Hang Seng Index surged up by 2 percent.

Meanwhile, the major European markets ended the day roughly flat. While the U.K.'s FTSE 100 Index closed just above the unchanged line, the French CAC 40 Index and the German DAX Index both edged down by 0.1 percent.

In the bond market, treasuries showed a notable pullback following the release of the statement from the Fed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2 basis points to 2.527 percent.

Looking Ahead

Trading on Thursday is likely to continue to be impacted by reaction to the Fed statement, although reports on weekly jobless claims and Chicago-area business activity may also attract some attention.

On the earnings front, Facebook (FB), Visa (V), Starbucks (SBUX), MetLife (MET), and Kraft Foods (KRFT) are among the companies releasing their quarterly results after the close of today's trading.

Additionally, Exxon Mobil (XOM), MasterCard (MA), Clorox (CLX), Cigna (CI), and Anheuser-Busch InBev (BUD) are among the companies due to report their results before the start of trading on Thursday.