Benchmarks were battered on Wednesday after Bernanke said the Central Bank might cut back on the $85 billion bond purchase program towards the end of the year, if the economy improved. In spite of the free fall in stocks during yesterday’s trading session, a couple of companies managed to chalk up gains following better than expected results. All the top ten S&P 500 industry groups suffered losses among which utilities stocks suffered the most.
The Dow Jones Industrial Average (:DJI) lost 1.3% to close the day at 15,112.27. The S&P 500 declined 1.4% to finish yesterday’s trading session at 1,628.92. The tech-laden Nasdaq Composite Index fell 1.1% to end at 3,443.20. The fear-gauge CBOE Volatility Index (:VIX) gained 0.2% to settle at 16.64. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.65 billion shares, higher than 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 16% that advanced, only 82% declined.
Benchmarks had increased to a record level until May 21, boosted by the bond purchase program and robust economic data. But following Bernanke’s testimony on May 22, the Dow Jones has oscillated within the range of 200 points more than fifteen times. The S&P 500 is currently trading 2.4% below its all-time high attained on May 21. Initially the Fed had said there would be no changes in the bond buying program. But Bernanke’s statements emerged as singular dampener during yesterday’s trading session. The Fed chairman said the bond purchase program would be reduced during the end of the year with the intention of completely ending it by mid-2014. These statements drastically effected investor sentiment after which markets went into a free fall.
Bernanke said: “If the incoming data are broadly Consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year; and if the subsequent data remain broadly aligned with our current expectations of our economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”
He added that the Fed expected the inflation rate would be 2% and the unemployment rate will be around 7% by that time. Currently, the unemployment rate is 7.6% and the inflation rate is hovering around 1.4%. The committee expected Gross Domestic Product for 2014 to grow at 3.4% from the previously stated 2.9%.
Shares of SPDR S&P Homebuilders (XHB) lost 2.3% after witnessing a good run yesterday due to an increase in homebuilder sentiment. Shares of Toll Brothers Inc (NYSE:TOL), KB Home (NYSE:KBH), D.R. Horton, Inc. (NYSE:DHI), The Ryland Group, Inc. (NYSE:RYL) and PulteGroup, Inc. (NYSE:PHM) lost 2.6%, 3.8%, 3.9%, 4.3% and 3.4%, respectively.
On the earnings front, shares of Adobe Systems Incorporated (NASDAQ:ADBE) gained 5.6% after it posted quarterly profits higher than the Street’s expectations. Profits of the company increased on the back of higher subscriptions for Creative Cloud and a growth in bookings of over 25%. Shares of FedEx Corporation (NYSE:FDX) gained 1.1% after it posted better quarterly results on the back of an improving ground shipment business.
The utilities sector was the biggest loser among the S&P 500 industry groups and the Utilities SPDR (XLU) lost 2.3%. Stocks such as Duke Energy Corp (NYSE:DUK), The Southern Company (NYSE:SO), Dominion Resources, Inc. (NYSE:D), NextEra Energy, Inc. (NYSE:NEE) and Exelon Corporation (NYSE:EXC) lost 2.2%, 2.6%, 2.2%, 1.7% and 1.5%, respectively.
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