Stocks End Lower After Fed, US GDP Shock
Major U.S. stock benchmarks fell on Wednesday, after dour U.S. growth data reinforced a decision by the Federal Reserve to maintain its commitment to massive economic stimulus.
In a decision widely expected by analysts, the Fed emphasized that it would stick to its bond buying program. That outcome was cast into doubt just weeks ago, after minutes from the central bank's last policy meeting showed some Fed members were growing concerned about ultra-low borrowing costs.
The decision converged with data that showed the U.S. economy shrank by an annualized 0.1 percent in the final three months of 2012, and reinforced expectations that the Fed would likely err on the side of more stimulus.
Despite a run of strong corporate earnings, the GDP data fanned concerns about the economy's ability to absorb higher tax rates — some of which took effect when the payroll tax holiday expired at the beginning of the year — and efforts to cut government spending.
"The real risk out there, and the Fed was very vague in how they characterized it…I think we're going to see major government spending cuts that are going to come through sequestration," Diane Swonk, chief economist and senior managing director, Mesirow Financial, told CNBC's "Street Signs"
"That is something the Fed has to deal with. That not only means weaker growth, which justifies lower rates, but it also means more Fed action."
After floating for most of the session between modest gains and losses in directionless trading, the Dow Jones Industrial Average shed about 44 points, trading around 13,910.42, drifting further away from the psychologically-important 14,000 barrier being watched by analysts.
The CBOE Volatility Index (VIX), widely considered to be the market's best gauge of fear in the market, rose above just shy of 14.
Meanwhile, after weeks of buying on the rumor of Research In Motion's new BlackBerry 10, investors on Wednesday opted to sell the fact.
The company — which officially changed its corporate name to BlackBerry — unveiled the new smartphone that many analysts see as essential to its long-term survival. Still, investors voted with their feet as RIMM plunged more than ten percent in volatile trading. It finished the session near near $14.
Volume in the company's stock this month is 85 percent higher than the average daily volume in the previous three months, 34.2 million. RIMM is up about 29 percent this month, its largest gainsince November, when it rose 46 percent.
The GDP report came just on the heels of a policy decision by the Fed. Some analysts, however, saw the slippage in U.S. growth as a temporary blip.
(Read more: Why Markets Aren't Worried About Bad GDP Report.)
"[The] bottom line is that while this is the first reading for output for the final quarter, both inventories and trade could be revised firmer," said Andrew Wilkinson, chief economic strategist at Miller Tabak.
"We expect 2013 to start with a rebound in inventory building, something evidenced by firm durable goods orders that will likely filter through into shipments moving into" the first quarter of this year, he added.
Still, markets were encouraged by a spate of strong quarterly earnings reports. Boeing rose one percent after the company reported fourth-quarter profit of $1.28 per share, above analyst estimates. The company dismissed speculation that its bottom line would take a hit from widely publicized problems with its 787 Dreamliner, and expects to maintain its production and delivery forecast.
Amazon.com surged by more than four percent, trading near $270 and within striking distance of a new 52-week high despite seeing a fourth-quarter shortfall on both the top and bottom lines. Analysts preferred to focus instead on what they expect will be Amazon's impressive profit margins.
Looking ahead, social networking giant Facebook notched gains ahead of its fourth quarter earnings, scheduled to be released after the bell. After broad pessimism pushed its stock below $20 last year, the company's stock has steadily climbed back above $30.