Stock rally pauses as investors raise concerns over Fed's dim outlook
NEW YORK — The stock market paused on Thursday as investors tried to figure out what to do as a result of the Federal Reserve's decision to hold steady on its stimulus for the economy.
The Dow Jones industrial average and Standard & Poor's 500 index pulled back from their record highs the day before. Gold, historically a haven for nervous investors, had its biggest one-day jump since the onset of the financial crisis in September 2008.
Many investors had expected the central bank to scale back its $85 billion in monthly bond purchases, but the Fed said it first needed to see more evidence that the economy was improving.
The question is whether stocks can continue their strong run-up, given the Fed's dimmer outlook on the economy. The stock market is up 21 percent for the year, and 155 percent since a recession low in March 2009. And after a tough August, the S&P 500 has risen 11 of the last 13 days.
The rally on Wednesday extended that surge but raised a deeper concern for Julius Ridgeway, an investment adviser at Medley Brown, a financial-advisory firm in Jackson, Miss.
Ridgeway said the rally showed that investors believe the economy still needs the Fed's help, even after more than two years of modest economic growth.
“The market wants the economy to be healthy and on life support, and it can't have both over the long term,” he said.
The Fed's bond buying is designed to keep interest rates low, with the goal of stimulating the economy by encouraging borrowing and lending.
Chairman Ben Bernanke and other voting members of the Fed telegraphed throughout the summer that the central bank was considering pulling back on the program, if the economy was healthy enough.
Now, with the Fed delaying its pullback, the market could enter a new period of uncertainty, rarely good for sustaining a stock rally.
The market is back to its mentality in May, when investors were trying to parse every data point from the Fed to figure out what it was planning to do, said Wayne Wilbanks, chief investment officer at Wilbanks, Smith, Thomas in Norfolk, who manages about $2.4 billion in assets.
“The Fed buttered the market up. It was a done deal,” he said. “It was a huge policy mistake.”
The Fed also cut its economic growth forecasts for this year and 2014. Bernanke warned that the upcoming debt ceiling and budget fights between the White House and Congress “may involve additional risks to financial markets and to the broader economy.”
On Thursday, the Standard & Poor's 500 index fell three points, or 0.2 percent, to 1,722.34. The Dow Jones industrial average slipped 40 points, or 0.3 percent, to 15,636.55.
The Nasdaq composite index rose six points, or 0.2 percent, to 3,789.38.
The price of gold surged $61.70, or 4.7 percent, to $1,369.30 an ounce.
The yield on the 10-year Treasury note rose to 2.75 percent from 2.69 percent late Wednesday.
Despite Thursday's minor pullback, September has been great for the market. Stocks are on pace to have their best month in nearly two years.
The Dow set an all-time high of 15,767.93 on Wednesday after the Fed's decision. The S&P also closed at a record high — 1,725.52
However, Wilbanks and other investors believe the market cannot go much higher, particularly with an uncertain earnings season starting in a few weeks and the looming political fights in Washington.
“We're being very careful about U.S. equities,” he said.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Small retailers at intersection of social networks, foot traffic
- Mark Phelan: Cadillac, Mercedes hope to win at name game
- 153-year-old Venango well pumps out oil, history
- Woman on dating site looks too good to be true: How to vet that pic
- In ‘StockCity,’ real investing like game
- Test-tube tuna may be sea change
- Business Council for Peace program works to export profits, peace
- Health care, gas drilling industries await Gov.-elect Wolf’s footprint
- Variable-rate electricity contracts in Pennsylvania can cost customers plenty
- Iron ore price decline hurts U.S. Steel’s cost advantage over rivals
- Know flat-rate repair times