Stocks Close Mixed After Fed Extends 'Twist'
Stocks ended the day lower, dropping after Fed Chairman Ben Bernanke failed to meet hopes that the central bank will be stepping in soon with an aggressive stimulus program.
The major averages took on mild declines in a day of tight-range trading, initially slipping after a Fed policy announcement, regaining ground on hopes that the central bank was laying the groundwork for more monetary easing, then fizzling after the Bernanke news conference.
Instead of announcing a third round of quantitative easing, the Fed said it would continue with its current program of buying and selling bonds in an effort to boost risk assets and drive down interest rates.
"The market is now pricing in roughly a 70 percent chance of QE3," Michael S. Hanson, U.S. economist at Bank of America Merrill Lynch. "We think they are right, just not for this week."
All 10 sectors of the Standard & Poor's 500 turned negative after the Bernanke speech, while losers beat gainers 2 to 1 on the Dow industrials. It was another lazy, light day on Wall Street, with composite volume of only about 3.5 billion shares.
"People had expected more details of the conditions for enactment and the form of QE3," said Doug Roberts, chief market strategist at Channel Capital Research. "Chairman Bernanke simply continued to say as he had before that the Fed had the tools to deal with geopolitical shocks and continued economic deterioration without any further detail."
The Fed's Open Market Committee said it would extend Operation Twist, a balance sheet-neutral operation in which the central bank sells short-dated notes and buys longer-term debt. Twist will extend for another $267 billion.
"As unpopular as today's benign-action move by the Fed may be, it is the right thing to do," said Todd Schoenberger, managing principal at the BlackBay Group in New York. "Unfortunately, many on Wall Street had been expecting a shock-and-awe accommodation program, which can only result in sharp disappointment. The markets will not respond well to this news."
With the economy wobbling, particularly in terms of job creation, and the stock market enduring a volatile spring, traders had been looking to the central bank for a dose of stability.
"There's really no impetus for the Fed to ease right here," added Kathy Boyle, president of Chapin Hill Advisors in New York. "Things are slow, things are kind of ugly, but the market hasn't dropped dramatically."
Weakness in consumer stocks highlighted trading, while JPMorgan Chase moved ahead on a rare bit of good news regarding the $2 billion it lost in a much-examined trade gone wrong.
Disappointing news from Dow component and market leader Procter & Gamble limited gains, while consumer staples, utilities and industrials pulled down the S&P 500, where financials were the best performers.
P&G forecast that annual earnings for its coming fiscal year would be either flat or up by a mid-single digit percentage amount, with underlying sales set to show a 2 to 4 percent increase.
Walgreen faded as well on news that the pharmacy chain will spend $6.7 billion to purchase nearly half of Alliance Boots, a European pharmacy giant.
Historically speaking, Fed meetings have been positive for the market, at least since the dawn of the financial crisis in 2008.
The Standard & Poor's 500 has gained an average 0.74 percent on Fed days since the central bank began its zero interest rate policy.
JPMorganled gainers on the Dow industrials, with the bank rising on a CNBC report that it had sold off up to 70 percent off the positions that helped incur the losses of the so-called London Whaletrades.
Cisco also was a strong performer on the bluechip index, gaining after BMO Capital Markets raised its price target for the networking company.
In addition to P&G, Caterpillar , which has helped lead the market rally, was off sharply in early trade.
Research in Motion also continued its precipitous decline, losing another 5 percent as the BlackBerry maker begins laying off employees as part of a broad restructuring to cut costs.
In other markets, commodity prices were under pressure, with gold and oil posting drops as crude hit session lows following a report showing a gain in inventories.
Government debt prices dropped, with benchmark 10-year notes yielding 1.66 percent yield, off its high of the session.
Elsewhere in corporate news, Indenix Pharmaceuticals shares surged 12 percent on positive testing news for its hepatitis C drug IDX184.
Tesla Motors jumped 5 percent on an upgrade from Goldman Sachs.
Adobe Systems fell after it cut its full-year revenue outlook, suggesting that weak demand in Europe could affect sales of recently launched versions of its popular design software.
Orisirs Therapeutics surged after its life-saving stem cell drug received a second regulatory approval.
Earnings released on Wednesday include BedBath&Beyond and Red Hat, both coming after the closing bell.
Coming Up This Week:
THURSDAY: Jobless claims, PMI manufacturing index flash, existing home sales, Philadelphia Fed survey, FHFA home price index, leading indicators, Best Buy shareholders mtg, Google shareholders mtg; Earnings from ConAgra, Rite Aid
FRIDAY: Earnings from Darden Restaurants
—By CNBC Senior Writer Jeff Cox