Markets ended mostly in the red yesterday after Fed minutes raised concerns about fading gains from the bond purchase program. The reaction to the Fed minutes dragged Dow and S&P 500 lower, but Nasdaq managed some gains. Even the positive private jobs report failed to provide sufficient impetus. In fact, the positive numbers was a concern since such data might hasten the Fed taper.
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The Dow Jones Industrial Average (DJI) dropped 0.4% to end Wednesday’s trading session at 16,462.74. The Standard & Poor 500 (S&P 500) shed less than a point or 0.02% to close at 1,837.49. Tech-laden Nasdaq Composite Index emerged the only gainer as it gained 0.3% to finish at 4,165.61. The fear-gauge CBOE Volatility Index (VIX) slipped a meager 0.4% to settle at 12.87. Composite volume on the New York Stock Exchange was 3.65 billion shares. The decliners outpaced the advancers on the NYSE, as for 54% stocks that ended in the red, 42% stocks closed in positive territory.
The minutes of the Federal Open Market Committee that was held on the 17-18 last month provided a closer look at the views of Federal Reserve officials. The minutes suggested that some Fed officials were concerned about the asset repurchase program’s gains waning over time. The minutes noted: “A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue”. It also stated that officials were also “concerned about the marginal cost of additional asset purchases arising from risks to financial stability”.
The central bank had announced last month that it would start tapering its $85 billion bond buyback plan. At the same time, the Fed had indicated that the key interest rate would continue to remain at a record low for a longer period than what was promised previously. The asset repurchase program had been one of the catalysts for the equities’ record gains in 2013.
The Fed had set certain economic targets before it such tapering could begin. Employment data was being closely examined and an improvement in the labor market situation can be cited as one of the reasons behind the taper call. Even yesterday, markets received additional positive jobs data as Automatic Data Processing (NASDAQ:ADP) reported an addition of 238,000 private jobs in December. This outpaced the consensus estimates of an addition of 200,000 jobs. The positive numbers came ahead of the key nonfarm payroll data scheduled for release on Friday.
Getting into the details, the National Employment Report noted that small businesses (employers having less than 50 employees) added 108,000 jobs in December. Also, medium-sized businesses (less than 500 employees) added 59, 000 jobs and large businesses (1000+ employees) added 71, 000 jobs in December. The November numbers were also revised upward.
It was widely believed that such data had heightened chances of the central bank accelerating the cuts on its stimulus plan. This, along with the Fed minutes, dragged the benchmarks mostly downwards and consumer sector was among the biggest losers.
Consumer Staples Select Sect. SPDR ETF (XLP) dropped about 8%. Consumer 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), PepsiCo, Inc. (NYSE:PEP), Altria Group Inc (NYSE:MO) and Costco Wholesale Corporation (NASDAQ:COST) dropped 1.5%, 1.1%, 1.7%, 0.8%, 0.3%, 0.4% and 1.6%, respectively.