Wall Street slips for third day on Fed uncertainty

NEW YORK Wed Aug 7, 2013 5:36pm EDT

1 of 3. Traders work on the floor of the New York Stock Exchange August 7, 2013.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - U.S. stocks lost ground for a third consecutive session on Wednesday on growing uncertainty over when the Federal Reserve may start to wind down its stimulus, which has been a driving force behind the rally in equities this year.

Even after the benchmark S&P 500 index suffered its biggest decline since June 24 on Tuesday, the market was unable to bounce back following comments from a pair of Fed officials that gave little clarity to how soon the central bank might reduce its bond-buying program.

The S&P 500 broke below 1,694.06, its 14-day moving average, which had served as a support level. The broad market index is down 1.1 percent for the week, on track for the worst weekly performance since a drop of 2.1 percent during the week of June 21 after the Fed's last policy meeting.

However, the index is still up 18.6 percent this year after closing at a record high on Friday.

"People were concerned about the extent of the rally in the short term, and some people are talking about equities being too expensive relative to the underlying fundamentals," said Stephen Massocca, managing director at Wedbush Equity Management LLC in San Francisco.

"And of course, the big story, the next big piece of news, one would think, is the taper tantrum."

Federal Reserve Bank of Cleveland President Sandra Pianalto said on Wednesday that the central bank would be prepared to scale back asset purchases if the labor market remains on the stronger path followed since last fall.

The Dow Jones industrial average .DJI fell 48.07 points or 0.31 percent, to end at 15,470.67. The S&P 500 .SPX declined 6.46 points or 0.38 percent, to 1,690.91. The Nasdaq Composite .IXIC dropped 11.761 points or 0.32 percent, to 3,654.009.

Volume was once again light, with about 5.49 billion shares traded on the New York Stock Exchange, the NYSE MKT and Nasdaq, far below the daily average of 6.35 billion. Volume on Monday was the lowest of the year for a full trading session.

Walt Disney Co (DIS.N) was the Dow's worst performer. The stock fell 1.7 percent to $65.91 a day after the company projected a massive loss on its film "The Lone Ranger." Disney's adjusted earnings slightly beat expectations.

First Solar Inc (FSLR.O) shares plunged 13.4 percent to $40.47 a day after the solar panel manufacturer reported results that missed expectations and cut its full-year outlook.

Ralph Lauren Corp (RL.N) shares fell 8.6 percent to $173.13 after the fashion retailer reported a lower profit and disappointing sales at its own stores.

The two stocks were the S&P 500's worst performers.

Equity markets have been closely tied to central bank policy, with many investors concerned that economic growth isn't robust enough to boost stocks without the Fed's help. Last week, the July payroll report was much weaker than expected.

Charles Evans, the president of the Federal Reserve Bank of Chicago, said on Tuesday that the Fed would probably scale back its bond-buying program later this year, perhaps beginning as early as next month, depending on economic data.

That echoed comments made earlier on Tuesday by Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, though he told Market News International that the Fed might continue its stimulus program if growth doesn't meet its targets.

After the closing bell, Tesla Motors Inc (TSLA.O) shares jumped 12.7 percent to $151.25 after the electric-car maker reported a second-quarter profit of 20 cents a share versus an expected non-GAAP loss of 17 cents. <ID:L4N0G84OY>

Of the 434 companies in the S&P 500 that had reported earnings through Wednesday morning, Thomson Reuters data showed that 66.8 percent topped analysts' expectations, in line with the 67 percent beat rate over the past four quarters. On the revenue side, 54.1 percent have reported revenue above estimates, more than in the past four quarters, but below the 61 percent average since 2002.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 7 to 3, while on the Nasdaq, about two stocks fell for every one that rose.

(Editing by Nick Zieminski and Jan Paschal)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (6)
irisbrock wrote:
What do we really want. A recovering Economy or more QE’s? Then. Do not be stupid. Do not follow speculators.

Aug 07, 2013 7:50am EDT  --  Report as abuse
JoeObserver wrote:
Forget QE tapering, The Fed may actually print more as BOE’s Carney and ECB have stated they are prepared for more QE. Can the Fed be behind?

Aug 07, 2013 7:52am EDT  --  Report as abuse
chris876541 wrote:
Here’s the problem: Profits can only increase a certain amount by making cuts (labor cost being the biggest). So after all the layoffs, putting people on part time to avoid benefits, cutting hours further (like Papa John) to avoid giving healthcare to employees (cost of 14 cents per pizza which was offset by increasing pizza price by $1), turning off lights/saving energy, etc – after that the only way is to increase revenue which doesn’t happen when people don’t have enough money left over (after filling gas tanks/buying necessities). Equity markets (especially commodities) have been propped up with printed money – the fed could have helped the economy more by air-dropping $85B per month in populated areas so the money gets circulated in the broad economy from the middle class… a solid economy is based on money flowing up from workers – NOT by “trickle down” – nobody’s going to hire anyone until demand increases.

Aug 07, 2013 12:32pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.