Stocks retreated Thursday after the Federal Reserve announced plans to start unwinding some stimulus measures and a report showed existing-home sales fell last month.
Stocks had opened higher after a report showed an unexpected drop in jobless claims last week.
The Fed said it was scaling back two emergency-lending programs: It's paring its 28-day term-auction facility to $25 billion from $75 billion as well as its 84-day TAF, a program to offer banks access to short-term emergency funds that it's considering eliminating early next year.
"These schedules are consistent with the intention ... to gradually scale back these facilities in response to continued improvements in financial markets," the Fed said in a statement.
Meanwhile, existing-home sales fell 2.7 percentin August, a surprise as economists had expected a 2.9 percent increase, particuarly after a sharp increase in July.
Earlier, investors had cheered a report that showed the number of U.S. workers filing new claims for jobless benefits fell by 21,000last week, when economists were expecting an increase of 5,000. A less-volatile gauge of claims fell to an eight-month low.
"The message here is that the labor market’s healing process is a slow one," Joshua Shapiro, chief U.S. economist at MFR Inc., wrote in a note to clients, adding that households will be "contending with a weak labor market for quite some time."
This came after stocks shed 0.8 percent Wednesday following a late selloff. Stocks had initially risen after the Fed statement as investors cheered the Fed's improved language on the recovery. But doubt began to creep in as investors worried that the Fed's announcement to slow the pace of buying mortgage debt was the equivalent of firing a warning shot that it plans to start unwinding stimulus. That sparked worries about how the economy would fare without being propped up by the government.
The moves of the past few days highlight just how conflicted investors are: On one hand, they want to see signs of an economic recovery. On the other, they're somewhat disturbed by the idea that the Fed may tighten sooner rather than later.
Since the Fed meeting, the dollar has reboundedand gold and crude have declined, with gold falling below $1,000.
In Thursday's stock action:
Citigroup is expected to narrow the focus of its branch network to six major metropolitan areas, according to a Wall Street Journal report. The bank will focus on New York, Washington, Miami, Chicago, San Francisco and Los Angeles, paring business in Boston, Philadelphia and Texas.
The market also is watching as the largest run of initial public offerings to hit Wall Street in two years accelerates.
Shares of A123 Systems, a company born out of the MIT school in Massachusetts, soared on their debut on the Nasdaq today. The company, which makes lithium-ion car batteries increased the numer of shares in its IPO and priced them late Wednesday at $13.50, raising much more than expected. The stock symbol is "AONE."
A123, which is poised to benefit from the increasing popularity of hybrid and electric cars, is stirring speculation that this is the next big thing— the new ethanol.
But Ford slipped after JP Power & Associates said expects auto sales to plunge in September, back to their worst levels of 2009, as the glow of the "Cash for Clunkers" program has worn off.
Electronic Arts shares tumbled after Microsoft shot down talk that it might take over the videogame maker.
Amid talk that it could be another terrible holiday season, there was a bright spot for retailers: Goldman Sachs upgraded its price targets on several retailers, saying it thinks September-to-date trends are robust and could continue into the holiday season. Among those Goldman raised its price target on were: Abercrombie & Fitch, AnnTaylor and Chico's FAS.
Homebuilders took a hit after the disappointing existing-home sales report and ahead of tomorrow's new-home sales reading. Beazer and Hovnanian fell sharply.
The Treasury completes its three-day sale of $112 billion dollars in debt by auctioning $29 billion in 7-year notes. As usual, the results will be available shortly after 1 pm.
After the bell today, earnings are due out from Blackberry maker Research In Motion .
THURSDAY: G-20 summit; seven-year auction; Earnings from RIM after the bell
FRIDAY: Durable-goods orders; consumer sentiment; new-home sales; Earnings from KB Home
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