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Stocks Fall as Fed Fails to Move on QE3


NEW YORK ( TheStreet) -- U.S. stocks fell Wednesday after a so-called flash crash disrupted trading and the Federal Reserve failed to outline a plan to stimulate the economy, disappointing investors.

Some stocks were halted. The source of the problem was traced to Knight Capital Group (KGC - Get Report), which said its market-making unit had suffered a software glitch that was interfering with its system's interaction with the New York Stock Exchange. Knight Capital said the problem affected about 150 New York Stock Exchange-listed stocks. The NYSE was reviewing trades in 148 companies.

The Dow Jones Industrial Average finished down 32.55 points, or 0.3%, at 12,976. The blue-chip index started the session up about 7% year to date.

Breadth was positive within the Dow, as 17 of the blue-chip index's 30 components moved higher. The biggest percentage gainers were Intel (INTC), Chevron (CVX), Travelers (TRV) and Pfizer (PFE). The laggards included Boeing (BA), Hewlett-Packard (HPQ), American Express (AXP) and Bank of America (BAC).

The S&P 500 fell 4 points, or 0.3%, at 1,375. The Nasdaq closed down 19.31 points, or 0.7%, at 2,920.

The strongest sectors in the broad market were energy, basic materials, conglomerates and consumer staples. The transportation and consumer cyclical sectors were moving lower.

The Fed's statement said economic conditions were likely to warrant low levels of the federal funds rate at least through late 2014.

The Wednesday Fed meeting preceded the highly anticipated European Central Bank meeting on Thursday, with the markets hoping for an announcement of some sort of major intervention after ECB President Mario Draghi last week asserted his wish to do "whatever it takes" to keep the eurozone intact; his remarks were backed up by the leaders of Germany and France.

Economists at Capital Economics caution against building up too much hope on Draghi's comments.

"The ECB appears unlikely to follow up July's interest rate cut with further major policy announcements," said Ben May, an economist at Capital Economics. "While the securities markets program might be temporarily revived, Draghi is likely to resist pressure to grant the European Stability Mechanism a banking license and should continue to stress that the responsibility for addressing the fiscal crisis lies with governments, not the ECB."

The latest manufacturing data released Wednesday was soft, though it was accompanied by a decent construction spending report.

The Institute for Supply Management's manufacturing index for July came in at 49.8, which was below the expectations for a rebound to 50.2, and the second straight month the read came in below 50, signaling a contraction.

The Department of Commerce reported that June construction spending increased by 0.4%, which was in line with expectations, after an upwardly revised gain of 1.6% in May.

Automaker General Motors (GM) said its U.S. vehicles sales declined more than 6% in July on lower rental volumes, while Ford (F) saw its July sales fell 4% as fleet sales declined. GM shares dipped 0.3% while Ford shares fell 1.6%.

Before the markets opened Wednesday, a report from Automatic Data Processing said that employment in the U.S. nonfarm private business sector increased by 163,000 on a seasonally adjusted basis in July. Economists were expecting a figure of 120,000 for July. The estimated gain in June from May was revised down slightly, to 172,000 from the initial estimate of 176,000.

The higher-than-expected July figure and the revision suggests a better print than the consensus is currently pricing in for Friday's much-anticipated nonfarm payrolls report, which is plus 100,000, said Ian Lyngen, a strategist at CRT.

"That said, the ADP has been overestimating NFP by roughly 50,000 on average over the last four months, so if anything that takes some of the upside from this morning's release," he cautioned.

"The relationship in any given month between the ADP report and the monthly payroll report is strained at best but the better-than-expected ADP July data does support our position that the monthly payroll report will come in better than expected," said BTIG strategist Dan Greenhaus.

September crude oil futures settled down $1.72 cents at $88.06 a barrel. December gold futures settled down by $7.30 at $1,607.30 an ounce.

The benchmark 10-year Treasury fell 15/32, raising the yield to 1.521%. The greenback was trading up 0.53%, according to the dollar index.

The FTSE in London settled up 1.38% and the DAX in Germany finished down 0.26% as the Hong Kong Hang Seng index closed higher by 0.12% and the Nikkei in Japan closed lower by 0.61% amid tepid manufacturing reports out of China and eurozone. The data added to hopes that policymakers would act to boost the global economy.

Yields on Spain and Italy's 10-years eased Wednesday.

In corporate news, media and entertainment giant Time Warner (TWX) posted second-quarter adjusted earnings of 59 cents a share on revenue of $6.74 billion. Analysts were expecting profit of 59 cents a share on revenue of $6.95 billion. Shares rose 1.2%.

MasterCard (MA) reported second-quarter earnings of $713 million, or $5.65 a share, beating the Wall Street target of $5.57 a share. Net revenue was $1.82 billion, falling short of the consensus estimate of $1.88 billion.

Purchase volume increased 13% globally, though revenue amassed in overseas markets took a hit thanks to the stronger dollar.

Shares fell 2.2%.

Nokia (NOK) shares were rising Wednesday on talk that Chinese PC maker Lenovo may be interested in the struggling Finnish cellphone maker, Reuters reported.

Shares dipped 1.2%.

Take-Two Interactive Software ( TTWO ) posted worse-than-expected first quarter results and cut its full-year guidance amid weaker-than-expected demand for some of its games. Shares were declined by more than 10%.

Cable company Comcast ( CMCSA ) posted second-quarter earnings that exceeded estimates as it signed up a greater number of phone and broadband customers and lost less customers. Shares added more than 3%.

Facebook ( FB) shares slid 3.8% and on their way to a new low.


-- Written by Andrea Tse in New York.



>To contact the writer of this article, click here: Andrea Tse.

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