Stocks struggle as Fed will wait to make move

Updated: 9:23 p.m. ET

The Federal Reserve declined today to get more aggressive on the economy, disappointing many traders around the world. At least for now.

Stocks were higher before the Fed announcement and meandered afterward before closing in the red. The Dow Jones industrials ($INDU) closed below 13,000 for the first time since July 26.

The Federal Open Market Committee, the Fed's policy-making body, left its key interest rates unchanged. The Fed said rates would remain low until at least the end of 2014. What traders wanted was action. Since short-term rates already are near zero, action would mean a big new round purchases of Treasury securities to ensure that long-term interest rates will remain low and help a budding housing recovery gain strength.
 
But the Fed said it was monitoring the economy closely and "will provide additional accommodation as needed" to strengthen the economic recovery. The Fed did concede that economic activity "decelerated somewhat" over the first half of the year. Job growth is frustratingly low. Moreover, the Fed remains deeply concerned about economic conditions in Europe.

The major averages all suffered their third losses in a row. The Dow closed down 38 points to 12,971, its lowest close in four sessions. The Standard & Poor's 500 Index ($INX) was down 4 points to 1,375. The Nasdaq Composite Index ($COMPX) was off 19 points to 2,920.

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The Nasdaq's loss largely reflected weakness in small- and mid-capitalization stocks.

The Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, was off 7 points to 2,635, despite gains in Comcast (CMCSA) and Electronic Arts (EA). Apple (AAPL), the biggest influence on the index, was off $3.95 to $606.81.

The Dow's loss was originally reported as 32.55 points but was revised some time after the close.

The Fed decision came after a mediocre report on U.S. manufacturing. But the ADP National Employment Report, a measure of private-sector job growth, suggested employers added 163,000 jobs in July, better than expected. Sales for Ford Motor (F) and General Motors (GM) slipped in July because of smaller sales to car-rental companies. Chrysler Group reported a  13% sales again.

Non-U.S.–based companies had stronger sales. Industry sales ran at an annualized rate of 14.09 million units, up 13.6% from a year ago.

Crude oil (-CL) in New York settled up 85 cents to $88.91 a barrel after the Energy Department reported lower-than-expected domestic oil supplies.

Gold (-GC) settled down $7.30 to $1,608.50 an ounce. Silver (-SI) dropped 37.9 cents to $27.535 an ounce. Copper (-HG) fell 4.25 cents to $3.375 a pound. Corn (-ZC) and wheat (-ZW) were lower.

The dollar was higher against the euro, but the 10-year Treasury yield hit 1.539%, up from Tuesday's 1.492%.

In addition to the European Central Bank policy announcement, the market will deal with monthly reports on factory orders and mass layoffs from Challenger Gray Christmas, plus the weekly Labor Department report on jobless claims.

General Motors (GM), Kellogg (K), Apache (APA), Cigna (CI)  and Clorox (CL) are among companies reporting earnings.

Energy prices -- New York close
			Wed.			Tues.			Month chg.			YTD chg.
Crude oil (-CL)			$88.91			$88.06			4.65%			-10.04%
(per barrel)
Heating oil (-HO)			$2.8588			$2.8480			5.49%			-1.90%
(per gallon)
Natural gas (-NG)			$3.1710			$3.2090			12.29%			6.09%
(per mil. BTU)
Unleaded gasoline (-RB)			$2.8342			$2.7743			7.69%			6.65%
(per gallon)
Brent crude			$105.66			$104.92			8.04%			-1.60%
(per barrel)
Retail gasoline			$3.5210			$3.5000			5.51%			7.48%
(per gallon; AAA)

So, when will the Fed stop waiting and make a move?
While the Fed stood pat today, its phrase "will provide additional accommodation" was stronger language than it used in June when the FOMC said it was "prepared to take further action."

The Fed could well start another bond-buying program if the jobs reports due Friday and Sept. 5 show a sharp deterioration in domestic labor markets. The FOMC meets  Sept. 12-13. But Chairman Ben Bernanke may signal the Fed's intentions at its annual retreat in Jackson Hole, Wyo., at the end of August.

If Friday's jobs report is awful, it could move faster than anyone thinks.

 

Today's Fed decision puts the focus on the European Central Bank, whose governing board meets Thursday, with the policy announcement due at 7:45 a.m. ET.

The market will watch closely to see if ECB President Mario Draghi has the capacity to do more to support the struggling economies of Spain, Italy and Greece. Draghi had promised last week to "do whatever it takes" to save the euro.

 

Draghi's remarks, made in London, set off stock rallies around the world as traders bet that the ECB would do more to support Spanish and Italian bonds. Germany has resisted big moves that could effectively make Europe's strongest economic power forced to prop its poorer relations elsewhere.

Green Mountain Coffee shares jump on buyback plans
After the close, shares of Green Mountain Coffee Roasters (GMCR) jumped 12.8% to $20.20. The company reported a 30% gain in fiscal-third-quarter​ earnings and announced plans to buy back shares.

The quarterly results demonstrate the company's strength, CEO Lawrence Blanford said late today, but the company's sales growth would moderate from the hyper-growth it had shown over the past few years.

The company expects to earn 45 to 50 cents a share on an adjusted basis for its fourth quarter on revenue of $889.9 million to $925.5 million. Analysts polled by FactSet had forecast earnings of 61 cents on revenue of $952.2 million for the quarter.

Travelers, Chevron lead the Dow
Energy, health care and materials stocks were the market leaders. Utilities were the laggards.

The Dow was led by Travelers Companies (TRV) and Chevron (CVX), but only 13 of the 30 stocks were higher.

Frontier Communications (FTR), real-estate broker CBRE Group (CBG) and insurance giant Allstate (ALL) led the S&P 500, but only 99 S&P 500 stocks were higher on the day. All were higher because of decent quarterly earnings.

Thirty-two Nasdaq-100 shares were higher. While Electronic Arts and Comcast were the leaders, BMC Software (BMC) and Citrix Systems (CTXS) were the laggards.

Facebook (FB) was off 83 cents to $20.88, after falling to a new low of $20.84. The shares are off 44% from their initial public offering price of $38 in mid-May as Wall Street continues to worry about the company's inability to generate revenue from users who mostly access Facebook from mobile devices.

What the Fed may do
The Fed is likely to show that it's ready to act against a weakening U.S. economy but stop short of aggressive measures for now.

Economists say the central bank could well push back its guidance for when it sees the need for an eventual rate hike into 2015 from the current Fed consensus of late-2014, a move that could signal the depth of the central bank's concerns about the economy and hint at new measures ahead.

Wall Street is braced for another round of Fed bond purchases. Reuters said some economists see an off chance that an announcement might come on today. But analysts believe policymakers will wait until at least September, giving them more time to lay out the case for their preferred method for easing policy in speeches between now and then.

Weakness in manufacturing; ADP sees a big job gain.
U.S. manufacturing unexpectedly contracted for the second straight month in July, showing a mainstay of the economy was struggling to improve as global economies weakened.

The Institute for Supply Management’s factory index was 49.8 last month, close to the three-year low of 49.7 reached in June. Fifty marks the dividing line between expansion and contraction, although the index would have to fall below 43 to signal a recession.

The ADP report is closely watched as a signal of what Friday's big jobs report may show. The 163,000 increase in private-sector jobs, however, was larger than expected.

Plus, the report overall has a history of missing what government data may show. The consensus is for the government to show payrolls to increase by about 100,000.

A funky open hits the market
Traders grappled with a wave of orders that roiled the market and prompted exchanges to halt trading in some securities. Initial signs pointed to a rogue trading algorithm, traders said, and the problem appeared to originate in the computer systems of Knight Capital Group (KCG), one of the biggest market makers. Knight conceded a software glitch.

Knight shares lost a third of their value, falling $3.39 to $6.94.

Some 148 stocks were affected, including stocks in nine Dow components. Among big stocks affected were American International Group (AIG), American Express (AXP), Coach (COH), Bank of America (BAC) and Citigroup (C).

Also seeing big price moves were shares of RadioShack (RSH), Quicksilver Resources (KWIK) Magnum Hunter Resources (MHR) and Dole Food (DOLE).

Short hits from the markets -- New York close
			Wed.			Tues.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.0900%			0.100%			-10.00%			800.00%
5-year Treasury note			0.627%			0.599%			4.67%			-24.46%
10-year Treasury note			1.515%			1.492%			-8.68%			-19.03%
30-year Treasury bond			2.591%			2.577%			-6.23%			-10.31%
Currencies
U.S. Dollar Index			83.178			82.710			1.74%			3.30%
British pound			1.5605			1.5681			-0.62%			0.44%
(in U.S. $)
U.S. $ in pounds			£0.641			£0.638			0.63%			-0.44%
Euro in dollars			$1.23			$1.23			-2.52%			-5.03%
(in U.S. $)
U.S. $ in euros			€ 0.813			€ 0.813			2.59%			5.30%
U.S. $ in yen			78.37			78.12			-1.72%			1.65%
U.S. $ in Chinese			6.39			6.36			0.31%			1.04%
yuan
Canada dollar			$0.999			$0.997			1.63%			1.78%
(in U.S. $)
U.S. dollar			$1.002			$1.003			-1.60%			-1.75%
(in Canadian $)
Commodities
Gold (-GC)			$1,607.30			$1,614.60			0.19%			2.58%
(per troy ounce)
Copper (-HG)			$3.375			$3.418			-3.47%			-1.78%
(per pound)
Silver (-SI)			$27.5350			$27.9140			-0.28%			-1.36%
(per troy ounce)
Wheat (-ZW)			$8.7950			$8.8825			16.14%			34.74%
(per bushel)
Corn (-ZC)			$8.0050			$8.053			26.11%			23.82%
(per bushel)
Cotton			$0.7056			0.7134			-1.08%			-23.04%
(per pound)
Coffee			$1.7460			1.744			2.28%			-23.97%
(per pound)
Crude oil (-CL)			$88.91			$88.06			4.65%			-10.04%
(per barrel)