Fed meeting steals focus as markets drop slightly
NEW YORK — Nobody wanted to stick out their neck on Tuesday.
The stock market edged slightly lower as the Federal Reserve started a two-day policy meeting that may herald the beginning of the end for its economic stimulus.
Few expect that the Fed will announce it plans to pare back, or “taper,” its huge bond-buying program when its meeting wraps up on Wednesday. However, good news on the economy this month, including a blockbuster jobs report, and a budget deal in Washington appear to have increased the likelihood of a change.
“It's just the taper drama, that's really all the market seems focused on,” said Dean Junkans, CIO for Wells Fargo Private Bank. “The chances of them doing something tomorrow are higher than they were a month ago.”
Major stock indices fell, but just slightly. The Standard & Poor's 500 index eased five points, or 0.3 percent, to 1,781. The Dow Jones industrial average crept down nine points, or 0.1 percent, to 15,875.26. The Nasdaq composite edged lower by five points, or 0.1 percent, to 4,023.68.
Eight of the 10 industrial groups in the S&P 500 declined, led by phone companies. Materials stocks and technology companies edged higher.
A couple of big companies bucked the downward trend when they pledged to hand more cash to stock holders.
Boeing rose $1.16, or 1 percent, to $135.88 after the plane maker increased its stock buyback program by $10 billion and raised its dividend 52 percent. 3M climbed $3.73, or 3 percent, to $131.39 after raising its dividend by 35 percent. The company also forecast solid earnings next year.
Stocks have surged this year as the Fed kept buying $85 billion in bonds every month to hold down long-term interest rates. As well as boosting the economy, that stimulus has made stocks a more attractive investment compared to bonds.
The only setbacks for the market this year have come when investors were nervous that the Fed was about to cut back its stimulus.
The S&P 500 index dropped 1.5 percent in June when Fed Chairman Ben Bernanke outlined a potential exit for the Fed from its stimulus strategy. The index fell 3.1 percent in August when investors thought the policy would change in September.
Instead of worrying about the market's immediate reaction to the Fed's announcement on Wednesday, investors should focus on the positive backdrop for stocks, said Liz Ann Sonders, chief investment strategist at Charles Schwab.
The economy is improving, companies are investing more and earnings are forecast to grow at a steady rate, ensuring there will be demand for stocks.
“Dips that we get are not going to be terribly severe,” Sonders said.
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