U.S. stocks closed lower Wednesday as profit taking
halted a rally that began Tuesday with the Federal Reserve's record interest rate cut.
Traders were positioning their portfolios for Quadruple Witching expiration of options and futures on Thursday and Friday, which may also have contributed to the market's late-session retreat, says S&P MarketScope.
Shares of Morgan Stanley (MS) closed slightly higher despite the firm's wider than expected fourth-quarter loss. Apple Inc. (AAPL) shares were down sharply amid renewed speculation about the health of CEO Steve Jobs.
Bonds rallied for a second day on the Fed's rate cut and other stimulus plans, while the dollar index lost further ground. Gold futures spiked
on the weaker dollar. Oil futures fell as U.S. inventories rose.
On Wednesday, the 30-stock Dow Jones industrial average finished lower by 99.80 points, or 1.12%, at 8,824.34. The broad S&P 500 index shed 8.76 points, or 0.96%, to 904.42. The tech-heavy Nasdaq composite index fell 10.58 points, or 0.67%, to 1,593.33.
"[T]he bulls may need a breather in order to recharge for the next advance to higher price levels," says S&P technical analyst Chris Burba.
European equities closed mixed Wednesday, with London stocks higher by 0.35%, while Frankfurt was down 0.46% and Paris fell 0.30%. Asian markets finished higher, with Tokyo stocks up 0.52%, Hong Kong higher by 2.18%, and Shanghai edging up 0.09%.
The Fed went deep on Tuesday, cutting the benchmark U.S. federal funds rate by three-quarters of a point, more than the half-point reduction that economists had expected. The new target range for the fed funds rate is 0% to 0.25%, the lowest level on record.
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Federal Open Market Committee (FOMC) said in a statement, adding it expects "exceptionally low levels for the federal funds rate for some time."
In further efforts to ease the credit crisis, the Fed committee also said it "stands ready" to expand purchases of debt and mortgage-backed securities, and may even buy longer-term Treasury securities.
Morgan Stanley economist David Greenlaw wrote in a note Wednesday that he continues to believe the economic climate in the U.S. will deteriorate for the next few quarters, but added that "aggressive monetary and fiscal stimulus, together with the recapitalization of the financial system and the implementation of bank liability guarantees, are the right policy medicine and these actions should eventually help to stabilize the financial system and lead to a bottoming out of economic activity."
GMAC, the financing arm of General Motors (GM), is having trouble raising the targeted $30 billion capital that is needed to become a bank holding company and thus allow it to tap TARP funding, according to a CNBC report cited by Action Economics. Bank status would also GMAC to borrow directly from the Fed. The firm is looking to swap some $38 billion in current notes for preferred stock and cash, and had reportedly raised $20 billion as of late Tuesday. The deadline for investors to tender their notes has been pushed back twice already, and is currently set at Friday at 5:00 p.m. ET. Chrysler Financing is also warning it may have to stop dealer loans, according to CNBC.
The Wall Street Journal Online reports a bail hearing in Manhattan for 2 Next Page