Stocks gave back most of their afternoon gains Tuesday as investors digested news that the Federal Reserve would be willing to provide "additional accommodation" to the U.S. economy.
The Dow Jones Industrial Average closed up 7.41 points, or 0.1 percent, to 10,761.03, after rising more than 70 points briefly after the Federal Reserve released its policy statement at 2:15 p.m.
Caterpillar and Hewlett-Packard gained, while Alcoa and JP Morgan fell.
The S&P 500 fell 2.93 points, or 0.3 percent, to 1,139.78, and the Nasdaq snapped a nine-day winning streak, ending down 6.48 points, or 0.3 percent, to 2,349.35. The CBOE Volatility Index, widely regarded as the best gauge of fear in the market, rose more than 4 percent, above 22.
While Tuesday's results were lackluster, the major indexes were still up significantly for the month. The Dow gained 7.5 percent, the S&P gained 8.6 percent, and the Nasdaq gained 11.1 percent.
Financials, utilities and consumer discretionary sectors slipped, while telecom and industrial sectors gained.
The Federal Reserve said they would leave short-term rates unchanged, as expected. The Fed also has no immediate plans to begin quantitative easing. But Fed members indicated they are concerned about the economy's sluggish growth and low inflation, and are ready to provide supportto the U.S. economy.
"The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate," the Fed said in a statement.
The initial boost in stock prices was somewhat surprising, said Lawrence Creatura, a portfolio manager at Federated Investors, since the things the Fed discussed were on investors' radar screens already.
"The fact these options are recognized by them as being on the table to ensure price stability is significant in the sense that it indicates they are willing to use those tools from their arsenal to get the job done," Creatura said. "To have it explicitly stated perhaps is news to some."
Creatura noted, however, that while technical improvement in the markets has been good, it's taken place on very little volume.
"Whether these are real moves, or whether these moves have enough mass to be sustainable is still open to question," Creatura said. "It’s a comedy; investors, they just checked out during the summertime and have not returned."
That may be good news for portfolio managers, however. "There is an absence of liquidity that indicates that it may be some time to spot some mispricings in the market," he said.
Adobe Systems shares plummeted more than 9 percent in after-market trading after the software company released disappointing guidancefor the fourth quarter.
Materials continued to lag the broader market with most steel stocks, including Alcoa, in the red.
U.S. Steel and Nucor slipped after brokerage Longbow cut its ratings on the steel giants to "neutral" from "buy" and "sell" from "neutral," respectively.
BHP Billiton has extended the deadlinefor its Potash takeover bid until November 18, after a Canadian regulator asked for more information. Analysts now speculate the takeover battle will drag on into 2011.
Most gold miners were lower including Kinross Gold and Barrick Gold . Gold prices eased below $1,273 an ounce.
On the tech front, Hewlett-Packard and Oracle settled a legal dispute over Oracle's hiring of ex-HP CEO Mark Hurd.
Sandisk sank after it was downgraded by Sterne Agee to "neutral" from "buy," and Morgan Stanley cut its estimates as well, citing slow retail demand. Micron Technology also fell after Sterne Agee similarly downgraded the chip maker to "neutral."
Meanwhile, shares of rival Nvidia jumped after Pacific Crest said demand for graphics processors is stabilizing, and channel inventory has declined to three to four weeks from 10 to 12 weeks last quarter, in a note to clients.
Nokia tumbled after the Finnish handset maker said it would delay its flagship smartphone N8 model again. Meanwhile, rivals Apple and Research In Motion rose.
Google shares advanced after the search-engine giant said it is introducing additional security measures to its email accounts and other password-protected services. Other Internet firms including Baidu and Yahoo were trading higher.
Several financials were upgraded or downgraded from Evercore Partners, which started to cover the sector with a "positive view," although the sector remained lower.
The brokerage rated Bank of America , Comerica , Wells Fargoand Zions "overweight," while it rated First Financial and Huntington "underweight."
In earnings news, AutoZone shares fell despite reporting a boost of 6.7 percent in same-store sales and an unexpectedly strong 14 percent increase in profits.
ConAgra slipped after the maker of Healthy Choice frozen dinners and Hunt's tomato products, reported lower-than-expected quarterly earnings and cut its earnings growth forecast for the full year.
And a boost in sales allowed Carnival to report better-than-expected results, although the cruise company was cautious about the current quarter.
Clorox fell after the household goods firm announced the sale of its global auto care business to Avista Capital, and said it expects to receive $780 million in cash from the deal. The proceeds will be used to buy back stock over the rest of this fiscal year, Clorox said.
UBS began coverage of the entertainment sector with a "neutral" rating. Shares of Monster Worldwide and the New York Times fell after UBS gave the companies "sell" ratings. Viacom shares were also lower, even after the media firm received a "buy" rating from the brokerage.
Elsewhere,shares of Vivus soared after the company said studies of its experimental weight-loss drug Qnexa showed solid weight loss and no side effects for most of its users.
Boston Scientific rose after the medical equipment maker's Promus Element drug-eluting stent was approved by European regulators for a wider group of patients, including those who have diabetes.
Shares of Whole Foods sank after Credit Suisse downgraded the upscale grocery store chain to "underperform" from "neutral," citing slowness in sales.
And Nike fell although UBS raised its price target for the shoe retailer to $82 from $77.
In auto news, Toyota shares edged lower after news the automaker will be fined for "commercial bribery" by Chinese authorities, according to The Wall Street Journal.
Volume on the consolidated New York Stock Exchange remained light with 4.1 billion shares changing hands.
In economic news,housing starts rose 10.5 percent, the biggest boost since November, to a seasonally adjusted annual rate of 598,000, which was more than expected, the Commerce Department said. Analysts polled by Reuters had expected starts to rise to only 550,000.
Permits for new construction, meanwhile, surged 1.8 percent to a 569,000-pace in August, after a 4.1 percent drop in July, according to the Commerce Department. Most of the gains, however, were in multifamily construction.
More information on the state of housing in the U.S. will be learned later this week, as existing home sales data is reported Thursday, and new home sales data is reported Friday.
On Tap for Next Week:
WEDNESDAY: Weekly mortgage applications; oil inventories; Wall Street & Washington Conference; Earnings from General Mills and Bed Bath & Beyond
THURSDAY: Weekly jobless claims; existing home sales; leading indicators; Chicago Fed President Evans speaks; Volcker speaks; FCC meeting on opening up new airwaves; Earnings from Rite Aid and Nike
FRIDAY: Durable goods orders; New home sales; Richmond Fed President Lacker speaks; Philadelphia Fed President Plosser speaks; NY Film Festival; Earnings from KB Home
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