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Market indices go low

24 September 2009 08:55 (UTC +04:00)

Baku - APA-Economics. Stocks traded in a tight range Wednesday as investors took some solace from a slightly improved assessment of the economy from the Federal Reserve., AP reported.
The Fed’s governors said in a statement following their regular meeting on interest rates that the pace of economic activity has "picked up" since the last meeting in August. The Fed also said it would stretch out its goal of buying $1.45 trillion in mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae until the end of the first quarter of 2010. Its original goal was to complete the purchases by the end of this year.
The Dow Jones industrial average rose shortly after the Fed’s announcement, but gave up those gains and fell by late afternoon, following its tendency to trade erratically on Fed decision days. The Dow was still near its highs for the year and only about 185 points below of the 10,000 level, which it hasn’t seen since last October.
As expected, the Fed left its benchmark short-term interest rate unchanged at near zero â€” one of its many policy measures aimed at bolstering the economy. In its statement, the Fed sid it would "continue to employ a wide range of tools" to spur a recovery while also staving off inflation.
Max Bublitz, chief strategist at SCM Advisors in San Francisco, said there was nothing in the Fed’s statement to upset the upward trend in the market. "There is a trend in place, and that trend is in place until proven wrong," Bublitz said.
The Fed also said it would keep short-term interest rates at their historically low levels "for an extended period." That allayed any lingering concerns that the Fed was considering a rate increase, something it will have to do eventually in order to keep inflation in check. Higher interest rates would protect against prices creeping higher, but it would also mean greater borrowing costs for banks and businesses, a negative for both stocks and bonds.
The Dow trade mixed for much of the day, then gained as much as 88 points shortly after the Fed announcement. Those gains evaporated by late afternoon, however, leaving the Dow down 12.39 or 0.1 percent at 9,817.48 in the last hour of trading.
The broader Standard & Poor’s 500 index fell 3.50 or 0.3 percent to 1,068.16, while the Nasdaq composite index fell 3.96 or 0.2 percent to 2,142.34.
Losing stocks outnumbered winners by about 3-to-2 on the New York Stock Exchange, where volume came to 814.5 million shares, compared with 795.7 million shares traded at the same time Tuesday.
With major market indicators up more than 50 percent off their lows in early March, investors are worried that stocks have become overvalued, especially with the strength of the economy’s recovery still in question. Despite their doubts, investors continue to buy up stocks afraid of missing out on an extended rally.
The Dow Jones industrial average hasn’t traded over 10,000 since last October, and market watchers believe that if it does reach that milestone it could bring in more investors who don’t want to be left on the sidelines while stocks march ahead.
"Ultimately, once (the market) passes a certain point, people are forced to participate to a certain extent because they will lose money" by not being invested, said Doug Roberts, chief investment strategist at Channel Capital Research. "That is what has driven the market right now and could conceivably drive it for some time."
Oil prices dropped $2.63 to $69.13 a barrel on the New York Mercantile Exchange, bringing energy stocks down with it, after the government reported that crude inventories unexpectedly rose by 2.8 million barrels last week. Crude in storage is now 10.6 percent above year-ago levels, the Energy Department’s Energy Information Administration said in its weekly report.
Analysts had expected a drop of 2.25 million barrels for the week ended Sept. 18, according to a survey by Platts, an energy information service owned by McGraw-Hill Cos.
After the report, shares of Consol Energy Inc. were down $1.75, or 3.6 percent, at $47.53. Cabot Oil and Gas Corp. fell 91 cents, or 2.4 percent, to $37.51.
As investors moved out of energy stocks, they put more money to work in consumer staples, companies that tend to hold up well even during economic downturns.
A surprisingly strong earnings report helped lift shares of General Mills Inc. The maker of Cheerios and Yoplait yogurt said Wednesday its fiscal first-quarter profit jumped 51 percent on lower ingredient costs and solid demand for its products. The food maker also increased its full-year earnings outlook. Shares soared $3.05, or 5 percent, to $64.02. Rival Kellogg Co. rose $1.20, or 2.5 percent, to $49.71.
Bond prices rebounded after the Fed alleviated worries about inflation and said it would keep its short-term interest rate near zero. Treasurys recouped their losses from earlier in the day, which came after somewhat disappointing demand for the latest auction of 5-year notes.
The 10-year note rose 6/32 to 101 20/32 and its yield fell to 3.43 percent from 3.45 percent.
The dollar fell against other major currencies. Gold prices rose.
In other trading, the Russell 2000 index of smaller companies fell 3.45, or 0.6 percent, to 617.24.
Overseas, European indexes reversed early gains and finished slightly lower. Britain’s FTSE 100, Germany’s DAX index and France’s CAC-40 all fell 0.1 percent.
Hong Kong’s Hang Seng index fell 0.5 percent. Japan’s markets were closed for a public holiday.