Comments from activist investor Carl Icahn’s suggesting that the market was headed for a major decline dragged the Dow and S&P 500 down from their record highs. Markets had opened higher largely due to optimism about the Fed’s continued support for its stimulus plan. Additionally, the Dow crossed the 16,000 mark for the first time. However, a late sell off following Icahn’s comments meant that the Dow closed with meager gains, while the S&P 500 and Nasdaq finished in the red. The industrials sector was the biggest gainer among the S&P 500 industry groups while consumer discretionary stocks lost the most.
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The Dow Jones Industrial Average (DJI) gained 0.1% to close the day at 15,976.02. The S&P 500 dropped 0.4% to finish yesterday’s trading session at 1,791.53. The tech-laden Nasdaq Composite Index fell 0.9% to end at 3,949.07. The fear-gauge CBOE Volatility Index (VIX) increased 7.5% to settle at 13.10. Consolidated volumes on the New York Stock Exchange were 3.2 billion shares. Declining stocks outnumbered the advancers. For 59% shares that declined, only 38% advanced.
The Dow and the S&P 500 dropped from records highs just after an hour of achieving them. The day’s gains were eroded following Icahn’s comments at the Reuters Global Investment Outlook Summit. Speaking at the summit, Icahn said that there may be a “big drop” in the stock market. He believes the increase in earnings of several companies was driven primarily by lower borrowing costs than greater managerial efficiency. He said: “I am very cautious on equities today. This market could easily have a big drop…Very simplistically put, a lot of the earnings are a mirage…They are not coming because the companies are well run but because of low interest rates”.
Icahn also spoke on his plans for Apple Inc. (NASDAQ:AAPL). He said he does not want to begin a tussle with the iPhone maker’s management. However, he was critical about the company’s pile of unutilized cash reserves. Icahn wants Apple to buy back $150 billion worth of its shares. Apple’s shares ended 1.2% lower following Icahn’s comments.
Speaking to the Risk Management Association, President of the Philadelphia Federal Reserve, Charles Plosser said the economy is in better shape and the labor market situation has also improved. He suggested that Central Bank should now fix a dollar amount to its current stimulus program, and end the program when that limit is reached. Plosser said: “We cannot continue to play this bond-buying game by ear and risk the Fed’s credibility while creating lingering uncertainty about the course of monetary policy”.
This is the third time Federal Reserve has set up a bond-buying program to boost the economy, but unlike the previous two programs it is open-ended in nature. Plosser said fixing a specific amount for the program would make it easier for the Fed to explain the program to the public and eventually end bond purchases. He also said that he believes that the unemployment rate, which is currently at 7.3%, would reduce to 6.25% by end 2014.
The industrial sector was the biggest gainer among the S&P 500 industry groups and the Industrial SPDR (XLI) gained 0.2%. Stocks such as General Electric Company (NYSE:GE), The Boeing Company (NYSE:BA), United Technologies Corporation (NYSE:UTX), 3M Co (NYSE:MMM), and United Parcel Service, Inc. (NYSE:UPS) gained 0.1%, 1.7%, 0.5%, 0.2%, and 0.3% respectively.
Consumer discretionary stocks dropped the most among the S&P 500 industry groups and the Consumer Discretionary SPDR (XLY) lost 0.8%. Stocks such as Amazon.com, Inc. (NASDAQ:AMZN), Comcast Corporation (NASDAQ:CMCSA), The Walt Disney Company (NYSE:DIS), The Home Depot, Inc. (NYSE:HD), and Ford Motor Company (NYSE:F) lost 0.8%, 0.7%, 0.7%, 0.5%, and 0.5% respectively.