Stocks Slip as Economy Shrinks

NEW YORK ( TheStreet) -- Major U.S. stock averages dipped Wednesday after the government said the economy contracted in the fourth quarter. Benchmark indices had touched multi-year highs.

The Dow Jones Industrial Average dropped 22 points, or 0.2%, to 13,933. The blue-chip index has booked gains in seven of the past nine sessions.

Breadth was negative, with losers outnumbering winners 21 to nine. Bank of America ( BAC), 3M ( MMM), General Electric ( GE) and Exxon ( XOM) were the biggest blue-chip decliners.

Boeing ( BA), Intel ( INTC) and Verizon ( VZ) rose the most.

Boeing shares gained 1.3% after the aerospace giant beat fourth-quarter earnings estimates and said it sees "no significant financial impact" from the ongoing grounding and regulatory review of its showcase 787 jet.

The S&P 500 fell 6 points, or 0.4%, to 1,502. The Nasdaq was down 11 points, or 0.4%, to 3,142.

Most major sectors were off in the broader market, led lower by transportation, energy, capital goods and basic materials. The health-care and consumer non-cyclical sectors were the only gainers.

Volumes totaled 3.7 billion shares on the New York Stock Exchange and 2 billion shares on the Nasdaq. Decliners outpaced advancers by a ratio of 1.9-to-1 on the Big Board and 2.3-to-1 on the Nasdaq.

JJ Kinahan, chief derivatives strategist at TD Ameritrade, said many market observers were surprised at the rally at the market open because the headline gross domestic product number was so disappointing.

"I think there was just a little short squeeze there for a moment or two," he said. On the other hand, the market was also under some natural downward pressure, with the S&P 500 trading around 1,500 and the Dow approaching 14,000.

"Psychologically, they are big numbers," said Kinahan. At these levels, there is natural "resistance," which leads to selling pressure as traders start to take some profits and decide whether they want to reinvest money or sit on the sidelines to get a stronger signal on whether the market could break through those levels, Kinahan explained.

The Federal Reserve released its monetary policy announcement on Wednesday to little fanfare.

The central bank left interest rates unchanged at near-historic lows and noted that the economy "paused" in recent months, largely due to weather-related disruptions from Hurricane Sandy.

"The message was tamped down a bit, because although the chairman Ben Bernanke is trying to encourage transparency and open dialogue among the members, the last report went a little too far for his taste," Hugh Anderson, managing director at HighTower Las Vegas, said in an interview.

Facebook ( FB) issued its fourth-quarter earnings after the closing bell on Wednesday as the social-networking company reported earnings of 17 cents a share on $1.59 billion in revenue. Analysts expected Facebook to post profit of 15 cents a share on revenue of $1.51 billion.

Shares rose 1.5% during the regular session, but slipped in extended trading.

Bank of America Merrill Lynch reiterated its "buy" rating on Facebook on Monday, citing expected revenue acceleration and upside from mobile.

Earlier Wednesday, Research In Motion ( RIMM) unveiled its eagerly anticipated BlackBerry 10 technology and surprised investors by announcing that the company was changing its name to BlackBerry. Shares slid 12%.

In other tech news, Amazon.com ( AMZN) said fourth-quarter revenue rose 22%, but the online retailer missed Wall Street's bottom-line estimate.

Shares surged 4.8%.

The Bureau of Economic Analysis reported Wednesday that the advanced estimate on U.S. fourth-quarter gross domestic product showed that the economy shrank 0.1% during that period, compared with third-quarter growth of 3.1%. Economists were expecting growth of 1.1%.

The ADP report on private sector employment showed a gain of 192,000 jobs in January, versus a downwardly revised 185,000 the prior month. Economists, on average, were expecting an increase of 165,000 in January.

"Despite a downsizing to the December reading ... we remain optimistic that Friday's official report will leave room for upside revision," said Andrew Wilkinson, chief economic strategist at Miller Tabak.

David Ader, a strategist at CRT, said that although the GDP data was disappointing, it doesn't point to a recession. Ader noted that much of the decline was attributable to weak defense spending. Government spending in that sector fell by the most since 1972.

David Song, a currency analyst at DailyFX, wrote in a note that he saw encouraging numbers for the economy after looking deeper into the report, including data showing that personal consumption increased 2.2% during the fourth quarter, compared with projections of 2.1%. Disposable income was the largest since the second quarter of 2008 even as the savings rate increased to 4.7% from 3.6% during the period, Song said.

The Mortgage Bankers Association's seasonally adjusted index of mortgage application activity pointed to a decline of 8.1% for the week ended Jan. 26. Traders shrugged off the data, saying despite the week-to-week fluctuations in the report, the longer-term trend for housing remains positive.

Gold for April delivery surged $18.90 to settle at $1,681.60 an ounce at the Comex division of the New York Mercantile Exchange, while March crude oil futures closed up 37 cents at $97.94 a barrel.

The benchmark 10-year Treasury rose 2/32 to raise the yield to 1.995%. The dollar was down by 0.38%, according to the U.S. dollar index.

Chesapeake Energy ( CHK) CEO Aubrey McClendon is leaving the company he founded 24 years ago amid strategic differences with the company's new board.

Shares surged 6%.

Broadcom ( BRCM) beat analysts' fourth-quarter estimates but guidance from the key Apple partner came in below Wall Street's views.

Shares were up 0.5% on Wednesday.

Copano Energy ( CPNO) shares soared 15% after the company agreed to be acquired by Kinder Morgan Energy Partners ( KMP) for about $5 billion, including the assumption of debt.

Zynga ( ZNGA) shares slid 2.7% amid news that the company's chief game designer Brian Reynolds is leaving the company.

Aegerion Pharmaceuticals ( AEGR) shares were off 2.4%. The company is now in the early days of the commercial launch of Juxtapid for the treatment of homozygous familial hypercholesterolemia (HoFH), a rare genetic disease that prevents cholesterol from being cleared from the body.

-- Written by Andrea Tse and Joe Deaux in New York.

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

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