As published in The Wall Street Journal, August 1, 2012.
U.S. Stocks Lower After Volatile Day
by Jonathan Cheng
NEW YORK—U.S. stocks finished a tumultuous day of trading a touch lower, as investors were whipsawed by the latest Federal Reserve policy statement and a raft of trading irregularities.
The Dow Jones Industrial Average declined 37.62 points, or 0.29%, to 12971.06 after the Fed’s statement. Before the announcement, the blue-chip Dow had been up about 30 points.
The Standard & Poor’s 500-stock index dropped 4.00 points, or 0.29%, to 1375.32. The Nasdaq Composite lost 19.31 points, or 0.66%, to 2920.21.
Some investors were disappointed by the Fed’s decision to hold steady for the time being on its interest-rate policy. These investors had expected Fed Chairman Ben Bernanke to announce new stimulus measures after the central bank acknowledged that U.S. economic growth has “decelerated” and said that the Fed was “prepared to take further action.” Others, however, were skeptical that the Fed would act.
Following the announcement, the dollar rose, sending the Wall Street Journal Dollar Index, which measures the dollar against a basket of currencies, to the day’s highs. The euro fell to $1.2223, while gold dropped 0.4% to settle at $1,603.70 a troy ounce. Oil, meantime, rose 1% on the day to $88.91 a barrel. After an initial reversal, investors dumped their Treasury holdings, pushing the yield on the benchmark 10-year note up to 1.539%.
“With each one of these meetings, there is always a contingent of investors expecting something more,” says Will Braman, chief investment officer at Ballentine Partners. Now, he says, the focus will turn to the ECB, where expectations are even higher. Leaders in Europe, Mr. Braman said, “have promised quite a bit, so expectations for tomorrow’s ECB meeting are even higher than they were for the Fed’s meeting today.”
“Loose monetary policy cannot lead to strong economic growth—it’s pushing on a string,” said Bruce Zessar, managing director at Chicago-based Advisory Research, which manages over $9 billion in assets. “The Fed recognized it today. The problem is that the Fed is basically being left to spur economic growth at a time when Congress won’t do anything, but it really is about fiscal policy.”
The Fed’s moves were overshadowed in part by tumult in 148 securities listed on the New York Stock Exchange, many of which swung sharply in the first hour of trading. Knight Capital Group tumbled as traders scrambled to cope with uncertainty over irregular stock-price movements. Some traders and investors said the problems appeared to be tied to Knight, and the trading firm said it was looking into the movements.
Also in the mix were a set of muddled readings on the U.S. economy in July. A total of 163,000 private-sector jobs were added last month, topping expectations, but the U.S. manufacturing sector contracted for a second straight month. The weak U.S. manufacturing number came on the heels of similar declines in China, Australia and the euro zone. U.S. construction spending, meanwhile, fell in line with expectations.
“If you look at the manufacturing or the jobs data, it all continues to contribute to the economic malaise. People are standing by, waiting to see any policy clarity,” said Ron Florance, managing director of investment strategy for Wells Fargo Private Bank.
Even after a busy day Wednesday, the calendar promises investors two more potentially hectic days before the weekend. On Thursday, the European Central Bank is expected to announce new measures to address the euro-zone’s debt crisis, and on Friday, investors will get a look at the latest monthly government data on hiring.
European markets finished the day broadly higher, with the Stoxx Europe 600 adding 0.5%. Investors there mostly shrugged off data showing the contraction in manufacturing activity accelerated last month. Asian markets were generally lower. Japan’s Nikkei Stock Average lost 0.6% to snap a four-day win streak while the Shanghai Composite bucked the trend by rising 0.9%.
In corporate news, MasterCard MA -0.56% fell after the credit-card company topped earnings expectations after a previously disclosed pretax charge but missed on revenue estimates.
Nasdaq OMX Group NDAQ 2.62% firmed after the exchange operator, facing pressure after the rocky public listing of Facebook , FB -0.34% boosted its share-buyback program by $300 million. The move comes one day after Swiss bank UBS accused Nasdaq of a “gross mishandling” of the Facebook deal.
Facebook continued its slide, ending at a fresh all-time low close. The social-media giant has tumbled 12% in the past three days.
Allstate ALL 0.58% climbed after the U.S.’s largest publicly traded home-and-auto insurer raised rates and reported lower catastrophe losses.
Time Warner TWX 0.56% edged up after topping earnings estimates, falling short on revenue and affirming the full-year outlook.
Take-Two Interactive Software TTWO -1.09% declined after the game maker reported disappointing fiscal first-quarter results, citing lower-than-anticipated demand for certain high-profile games, and lowered its full-year outlook.
Idenix Pharmaceuticals sank after the company said it is seeking to raise $150 million through a stock offering.
Spirit Airlines SAVE 1.05% fell after the air carrier said it would offer for public sale 9.39 million shares of common stock that previously was owned by Oaktree Capital Management . OAK 0.12%
Career Education CECO 1.62% slumped after the company reported a surprise quarterly loss, citing a negative regulatory environment and public criticism that have constrained growth in the private-sector higher education sector.
Silicon Image surged on better-than-expected earnings and revenue and an earnings outlook that topped projections.
DreamWorks Animation declined after the computer-animation studio’s second-quarter earnings and revenue fell short of expectations.
Write to Jonathan Cheng at jonathan.cheng@wsj.com
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