Benchmarks eroded the day’s gains after Federal Reserve minutes suggested that tapering may begin in the in “coming months”. However, the timing of the action depends on what economic conditions suggest going forward. The day marked the S&P 500’s third-straight fall while the blue-chip index moved still further from its 16,000 mark. The healthcare sector was the only gainer among the S&P 500 industry groups while utilities stocks incurred the highest losses.
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The Dow Jones Industrial Average (:DJI) slipped 0.4% to close the day at 15,900.82. The S&P 500 also dropped 0.4% to finish yesterday’s trading session at 1,781.37. The tech-laden Nasdaq Composite Index declined 0.3% to end at 3,921.27. The fear-gauge CBOE Volatility Index (:VIX) edged up 0.07% to settle at 13.40. Consolidated volumes on the New York Stock Exchange were roughly 3.1 billion shares. Declining stocks outnumbered the advancers. For 65% shares that declined, 32% advanced.
Stocks moved lower on Wednesday following the release of Fed minutes which suggested that a steady improvement in economic conditions may prompt the central bank to taper its $85 billion bond repurchase plan in coming months. The Federal Open Market Committee's meeting held on October 29 and 30 observed that the economic data will “prove consistent with the committee's outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pact of purchases in coming months."
The minutes noted: “Many members stressed the data-dependent nature of the current asset-purchase program…Some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings".
Last Thursday, Janet Yellen had said: “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy…I consider it imperative that we do what we can to promote a strong recovery“. Speaking at a hearing before the Senate Banking Committee, Yellen said:”It's important not to remove support, especially when the recovery is fragile and tools available to monetary policy, should the economy falter, are limited given that short-term interest rates are at zero.”
This was followed by Ben Bernanke’s comments on Tuesday wherein he supported Yellen’s stance on monetary stimulus. Bernanke said: "The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed". "I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery," he added.
According to the US Department of Commerce, retail sales for the month of October increased by 0.4%, compared to the consensus estimate of an increase of 0.1%. Retail trade sales have increased 0.3% from September and 3.9% from last year. Nonstore retailers gained 8.2% compared to a year ago.
Separately, according to the US Department of Labor, the Consumer Price Index ( CPI) for the month of October declined 0.1%. The all items index rose 1.0%. The index for all items less food and energy increased 0.1%. The medical index remained unchanged, whereas, the all items index increased 1.0% in the last twelve months, which was the smallest yearly increase. The index for all items less food and energy has climbed 1.7% over the last year. The food index increased 1.3%.
The National Association of Realtors reported existing home sales numbers. According to the report, existing home sales fell 3.2% to a seasonally adjusted annual rate of 5.12 million in October from 5.29 million in September. This was below the consensus estimate of 5.15 million. NAR chief economist Lawrence Yun said: “The erosion in buying power is dampening home sales”. He added: “Moreover, low inventory is holding back sales while at the same time pushing up home prices in most of the country. More new home construction is needed to help relieve the inventory pressure and moderate price gains”.
The health care sector was the only gainer among the S&P 500 industry groups and the Health Care SPDR ( XLV) gained 0.3%. Stocks such as Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Merck & Co., Inc. (NYSE:MRK), Gilead Sciences, Inc. (NASDAQ:GILD), and Amgen, Inc. (NASDAQ:AMGN) added 0.3%, 0.8%, 0.1%, 2.0%, and 0.1%, respectively.
The utilities sector dropped the most among the S&P 500 industry groups and the Utilities SPDR ( XLU) lost 1.1%. Stocks such as Duke Energy Corp (NYSE:DUK), Dominion Resources, Inc. (NYSE:D), NextEra Energy, Inc. (NYSE:NEE), The Southern Company (NYSE:SO), and Exelon Corporation (NYSE:EXC) lost 1.5%, 1.6%, 1.2%, 1.6%, and 0.4%, respectively.
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