The S&P 500 and Nasdaq suffered their biggest declines in five weeks as investors grew worried about the prospect of a near term tapering of the Fed’s stimulus plan. Dismal earnings numbers added to the gloom and dragged benchmarks into the red. Consumer staples were the only gainer among the S&P 500 industry groups, while healthcare stocks incurred major losses.
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The Dow Jones Industrial Average (DJI) declined 0.8% to close the day at 15,843.53. The S&P 500 fell 1.1% to finish yesterday’s trading session at 1,782.22. The tech-laden Nasdaq Composite Index dropped 1.4% to end at 4,003.81. The fear-gauge CBOE Volatility Index (VIX) surged 10.9% to settle at 15.42. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.1 billion shares. Declining stocks outnumbered the advancers. For 83% shares that declined, only 16% advanced.
Speculations that the Federal Reserve would begin tapering its stimulus program soon intensified after Congressional negotiators agreed on a bipartisan budget deal late on Tuesday. The tentative two-year budget would make an automatic spending cut of $60 billion and reduce deficit by as much as $23 billion. The U.S. House of Representatives is expected to vote for the deal today or at the latest, by Friday. While the agreement avoids another government shutdown on January 15 and promises to end three years of political conflicts and fiscal instability in Washington, it brought no cheer to investors. Rather, it only served to heighten concerns about the Fed tapering its $85 billion bond buyback plan sooner than expected.
The Federal Open Market Committee will meet on December 17 and 18. Market watchers are looking forward to the meeting as its outcome will clearly indicate the Fed’s position on the bond purchases. The Fed has often stated that the taper decision centers on whether economic indicators are strong enough. Previously, some Federal Reserve officials had hinted that the Fed may taper its stimulus program sooner rather than later. A chain of favorable economic reports released during the last few weeks suggest that the economy is gaining strength. The stimulus program has played a major role in the equities’ bull run and markets remain apprehensive about Fed action on this front.
Earnings numbers also dented investor sentiment yesterday. Shares of Costco Wholesale Corporation (NASDAQ:COST) dropped 1.2% to $118.57 per share. The company’s shares declined after it reported weaker-than-expected results. Costco’s quarterly performance was hurt by higher operating expenses. Shares of mining equipment maker Joy Global Inc. (NYSE:JOY) declined 5.5% to $53.15 per share, after the company forecasted 2014 earnings below estimates. The company forecast earnings in the range $3-$3.50 per share which came in below analysts’ estimate of $3.68 per share. Meanwhile, revenue was projected to come in between $3.6-$3.8 billion, whereas the Street was expecting a forecast of $3.8 billion.
The consumer staples sector was the only gainer among the S&P 500 industry groups. The Consumer Staples SPDR (XLP) gained 0.2%. Stocks such as The Procter & Gamble Company (NYSE:PG), The Coca-Cola Company (NYSE:KO), Philip Morris International Inc. (NYSE:PM), Wal-Mart Stores, Inc. (NYSE:WMT), and CVS Caremark Corporation (NYSE:CVS) gained 0.4%, 0.7%, 0.2%, 0.01% and 0.2%, respectively.
The health care sector took the maximum loses among the S&P 500 industry groups on Wednesday. The Health Care SPDR (XLV) lost 1.7%. 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) decreased 1.1%, 2.2%, 1.0%, 3.0%, and 0.9%, respectively.
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