Stocks End Lower as Traders Mull Fed Plan

Stocks struggled — and lost — Wednesday as traders mulled a possible bailout of Greece and the Fed's exit strategy after comments from Fed Chief Ben Bernanke.

The Dow Jones Industrial Average lost 20.26, or 0.2 percent, to close at 10,038.38, after logging its biggest one-day percentage gain in three months on Tuesday. The S&P 500 shed 0.2 percent and the Nasdaq fell 0.1 percent.

Energy and industrials were some of the weakest components on the Dow, including DuPont and Caterpillar and Chevron .

Oil prices rose for a third straight day, closing above $74 a barrel, but commodity stocks were weak as companies in the sector are bearish on prices and are offering soft outlooks.

The dollar rose, continuing to benefit from uncertainty in Europe.

Talks are apparently going on in Europe about a possible bailout for debt-riddled Greece. The French daily Le Monde wrote that France and Germany are expected to present a bailout plan at an EU summit Thursday. But there's no clear EU policy on such a measure, which left a lot of uncertainty — and markets hate uncertainty.

But, that doesn't mean you can't trade it.

"I still think we’re in the beginning of a bull phase," Jeff Mortimer of Schwab Investment Management said on CNBC today. His advice for investors? "Have a buy-the-dip mentality,"Mortimer said. "Increase equity exposure — on the pullbacks."

As Wall Street dug out from a winter blizzard, the one-year anniversary of the government bailout of the financial sector slipped by with little fanfare.

Treasury Secretary Tim Geithner issued a statement on the recovery, timed for the anniversary. He urged Congress to pass the president's"Financial Crisis Responsibility Fee,"suggesting that, if it goes through, then "Americans will not have to pay one cent for TARP."

Earlier, Bernanke rattled the market after he said, in prepared testimony, that low rates are warranted for an extended period but said that the Fed's unwinding may begin with the discount rate, the rate the Fed charges banks, which has remained at 0.5 percent since Dec. 2008.

The market had initially interpreted that as a sign that monetary-policy tightening was coming but as analysts and economists mulled over the report, the less convinced they were that he was signaling tightening.

"[T]he likely near-term hike in the discount rate 'should not be interpreted' as a policy signal," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.

Bernanke's testimony was postponed due to the snowstorm in the Northeast but the text of the testimony was released at 10am ET.


The weather also wiped out the weekly crude oil inventory report and the Treasury's monthly budget statement. The crude report will now be released at 11am on Friday. The budget report will probably be postponed until next week.

The government also postponed its report on retail sales until Friday. That report had been due on Thursday.

Among the data points that were released this morning: The trade deficit ballooned to $40.18 billion in December, much wider than expected, amid a sharp rise in petroleum imports.

And mortgage applications fell 1.2 percentlast week, even as as mortgage rates fell, with the fixed 30-year rate again below 5 percent.

The Treasury auctioned $25 billion in 10-Year notes today, though demand was weak. The high yield was 3.692 percent and the bid-to-cover ratio was 2.67, well below average.

Financials showed some strength, with Dow components JPMorgan and Bank of America higher.

Sprint Nextel tumbled 8 percent after the wireless carrier reported its loss narrowed in the fourth quarter but revenue fell 7 percent as it offered more discounts to entice customers.

Disney beat earnings estimateswith its results after the bell Tuesday. The beat was attributed to cost cuts and strong results at its cable division, though its theme parks remain a concern.

Shares of Baidu, China's largest search engine, jumped after a strong outlook and as Google rattles its saber, threatening to exit the country. Google's global troubles continued as Iran is planning to suspend Google e-mail service in the country, the Wall Street Journal reported.

But Google has something else up its sleeve: The Internet titan is planning to build broadband networksthat could be up to 100 times faster than what most Americans use, the Wall Street Journal reported.

Home Depot is getting a lot of action ahead of its quarterly results, due out in a couple of weeks.

Dell got a boost as Bank of America/Merrill Lynch upgraded its rating on the stock to "buy" from "neutral."

And JPMorgan added Kraft to its "focus list," saying earnings growth will be slim to none this year but will pick up starting in 2011 with the acquisition of Cadbury.

More bad news for Japanese automakers: While Toyota grapples with a massive recall due to brake problems in some models, Hondaexpanded its recall of 2001 and 2001 Accords, Civics and other models due to a glitch that could cause the airbag to deploy too strongly.

The FAA is reported to be close to finishing a two-year investigation of safety violations at American Airlines that may result in one of the largest fines in the agency's history. The probe involved improperly secured wiring in MD-80 model aircraft.

After the closing bell today, we'll get results from videogame maker Activision Blizzard — fitting, given the snow storm hammering the Northeast today!

Still to Come:

THURSDAY: Retail sales; weekly jobless claims; 30-year auction; Earnings from Pepsi, Philip Morris, and Viacom; Fashion week starts; Miami boat show starts
FRIDAY: Consumer sentiment; weekly crude inventories; Treasury budget; Winter Olympics starts

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