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Stocks Wipe Out Gains to End Flat After Bernanke Speech

Wednesday, 12 Dec 2012 | 4:57 PM ET

Stocks wiped out their gains in choppy trading Wednesday to close narrowly mixed, after Fed Chairman Ben Bernanke's comments following the central bank's latest policy announcement and as ongoing worries over the "fiscal cliff" continued to weigh.

"It's buy the rumor, sell the fact," said Brian Battle, vicepresident of trading at Performance Trust Capital Partners. "The policy itselfwas not surprising, but the fact that they went to a target unemployment andinflation was destabilizing for the Fed's reputation."

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The Dow Jones Industrial Average slipped 2.99 points, or 0.02 percent, to close at 13,245.45, snapping a five-day win streak. Wal-Mart, led the blue-chip laggards.

The S&P 500 eked out a gain of 0.64 points, or 0.04 percent, to end at 1,428.48. The Nasdaq erased 8.49 points, or 0.28 percent, to finish at 3,013.81. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 16.

Among key S&P sectors, telecoms gained, while techs lagged.

Bernanke: Economy Expanding at Moderate Pace
Fed Chairman Ben Bernanke addresses the nations's unemployment rate and the FOMC's decision to keep interest rates low until unemployment falls below 6.5 percent. This should not be taken as the committee's long-term jobless rate goal, he added.

As expected, the Fed replaced the existing Operation Twist program due to expire at the end of the year with a fresh round of Treasury purchases that will increase its balance sheet. It committed to monthly purchases of $45 billion in Treasurys in addition to the $40 billion per month in mortgage-backed bonds it started buying in September.

In addition, the central bank also implemented numerical thresholds for policy, a move that had not been expected until early next year. The Fed said it will likely keep official rates near zero for as long as unemployment remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than 2.5 percent, and long-term inflation expectations remain contained.

"Since QE1 was announced, the Fed has purchased about $2.4 trillion in bonds; yet, the United States continues to grow at anemic rates with no real strategy for job creation," said Todd Schoenberger, managing partner at LandColt Capital. It may take generations to unwind these accommodative monetary policy moves."

Meanwhile, the Fed said it expects the unemployment rate to stay elevated until late 2015, suggesting it will keep short-term interest rates low for the next three years. In addition, the central bank slightly lowered its economic growth expectations and unemployment forecasts from September.

"Let me emphasize that the 6.5-percent threshold for the unemployment rate should not be interpreted as the committee's longer-term objective for unemployment," said Bernanke in a press conference. "Because changes in monetary policy affect the economy with a lag, the committee believes it likely will begin moving away from a highly accommodative policy stance before the economy reaches maximum unemployment."

Additionally, Bernanke reiterated that the central bank's monetary policy won't be enough to offset damage from the "fiscal cliff."

Ongoing "fiscal cliff" negotiations have sent markets zig-zagging in recent weeks. The looming fiscal cliff is the biggest worry for Wall Street at the moment, according to a CNBC survey. (Read More: 'Let's Just Do It,' Dimon Says of Avoiding 'Cliff')

"We're hanging on every word coming out from Washington and a lot of it is rhetoric," said Yu-Dee Chang. chief trader at ACE Investment Strategists. "The consensus is that something will get done, but the more Washington drags this out, the worse it will be for markets."

BlackRock's 2013 Bond Outlook
Rick Rieder, BlackRock's fixed income CIO, provides his view on the bond market and his key fixed income picks for next year.

DuPont rallied after the chemical maker raised its 2012 forecast and announced a $1 billion stock repurchase program.

Apple closed in negative territory after Sterne Agee trimmed its revenue estimates on the tech giant saying iPad sales look light even though iPhone sales could surprise to the upside. Separately, the Wall Street Journal reported that the tech giant is working with Hon Hai and Sharp to test designs for televisions.

Netflix soared to lead the S&P 500 gainers after Morgan Stanley boosted its price target on the online movie-streaming company to $105 from $80 and kept its "buy" rating on the stock.

Berkshire Hathaway rose after the conglomerate purchased 9,200 of its Class A shares at $131,000 per share from the estate of a long-time shareholder.

Among earnings, Costco beat Wall street expectations, thanks to higher membership fees. But shares of the wholesale retailer ended lower.

Joy Global posted earnings that topped expectations, but said its fiscal 2013 forecast would fall short of estimates.

Treasury prices pared their losses after the government auctioned $21 billion in 10-year notes at a high yield of 1.652 percent. The bid-to-cover was 2.95.

On the economic front, import prices dropped 0.9 percent in November, posting the biggest fall in five months, as food and fuel costs tumbled, according to the Labor Department.

Weekly mortgage applications rose last week as loan requests hit its third-straight high point for the year, according to the Mortgage Bankers Association.

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

THURSDAY: Jobless claims, PPI, retail sales, business inventories, 30-yr bond auction; Earnings from Hovnanian, Pier 1 Imports, Adobe Systems
FRIDAY: CPI, industrial production, Facebook lockup lifts

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