Stocks Closed Lower As Fed Rally Faded

Published on Thursday, 26 January 2012 21:00 Written by Christopher Lynn

New York, January 26^th (TradersHuddle.com) – Stocks closed lower after the Fed rally lost steam, with optimism following the Fed’s pledge to keep interest rates near zero until late in 2014 easing amid a flurry of earnings reports and as weekly jobless claims climbed and new home sales in December fell for the first time in four months.

The Dow Jones Industrial Average fell 22.33 points, or 0.17%. The S&P 500 index lost 7.62 points, or 0.57%, while the NASDAQ declined 13.03 points, or 0.46%.

The market started with gains, buoyed by solid earnings reports from Caterpillar (NYSE: CAT) and 3M (NYSE: MMM), while participants were still seeing upside momentum from the prior session rally that came following the Fed’s statement. Economic data was mixed with durable goods orders surpassing expectations and initial jobless claims climbing last week to 377,000.

The early advance put the broad market at its best level since summer, but without any real source of leadership, stocks fell to selling pressure that start building following data that showed that new homes sales in December unexpectedly fell. A retreat in the euro also coincided with the additional downward pressure in equities, with the market unable to hold to gains and closing in negative territory.

In Europe, equity markets closed higher following the upside momentum from the longer than expected accommodative policy from the Fed and on reports that speculated that Greece and private bondholders were closed to an agreement on the debt swap plan that would avoid a messy default.

Most of the S&P 500 sectors closed in negative territory, with only the utilities sector closing in positive territory. Energy, financials, and technology posted the biggest declines, while materials closed very near the unchanged line.

In the energy sector, crude oil received a lift from Iran concern, with the fuel closing at $99.70 per barrel, however the rally in natural gas that resulted after Chesapeake (NYSE: CHK) and ConocoPhillips (NYSE: COP) announced cuts in production amid soft prices was short lived, as the priced tumbled in the session following inventory data. Both Range Resources (NYSE: RRC) and Chesapeake Energy plunged more than 6% on the weak price action in the underlying commodity. Meanwhile, Murphy Oil (NYSE: MUR) was the top performer in the sector, with shares jumping 2% after its CEO in an interview said that the company was contemplating also the spinoff of its retail operations, like Marathon Oil (NYSE: MRO) last year and ConocoPhillips is scheduled to do later in the year. Murphy also joined other producers in announcing production cuts in natural gas.

Financials were also under some pressure amid sharp weakness in some regional banks. SunTrust (NYSE: STI) tumbled 5.18% to $20.50 after it was downgraded to a Hold at Deutsche Bank. And Zions Bancorp (NASDAQ: ZION) continued its slide, tumbling 5.4% to $16.58. The regional lender missed earnings expectations by $0.03 per share and was downgraded to a Hold at Stifel Nicolaus earlier in the week.

Meanwhile in the sector, Bank of America (NYSE: BAC) slid 0.7% to $7.30 after trading above its calculated resistance and as high as $7.50. BofA moved to the upside earlier on reports that it was limiting its cash bonuses to its investment bankers and shifting them to stock. On the other hand, Citigroup (NYSE: C) gained 1.4% to $30.38. Yesterday, there were reports that the financial firm was considering e cuts in its securities and banking unit.

Industrials saw support from the performances of Caterpillar (NYSE: CAT) and 3M (NYSE: MMM). Both stocks closed at the top of the Dow Jones Industrial Average after better than expected quarterly results. Caterpillar gained 2% to $111.31 after the world’s largest maker of earthmoving equipment posted a surge of more than 50% in profit, which came well above expectations. The results came amid increased global demand for its products including Europe, as Caterpillar had been benefiting from a weak Dollar against the yen, which has limited competition from rivals in Japan. Meanwhile, 3M gained 1.3% in the session.

Also in the Dow, but tumbling to the bottom of the index, AT&T (NYSE: T) lost 2.5% to $29.45 after it narrowly missed earnings expectations, as the iPhone sales impacted margins. The company posted better than expected revenues thanks to a jump in subscribers.

In tech land, the Technology SPDR ETF (NYSE:XLK) fell 0.74% to $26.90 after posting a new 10-year high at $27.19.

Apple (NASDAQ: AAPL) pullback from its prior session upside move, following its record shattering quarterly results. Apple fell 0.45% to $444.63 a day after posting a new all-time high of $454.54. FBR Capital joined the parade by bumping its target price to $525 from $500, citing the earnings results and the new product cycle for this year that includes an iPhone 5 and an iPad 3. 

And SanDisk (NASDAQ: SNDK) was hit hard, posting one of the biggest declines in the S&P 500 after the company posted mixed results. SanDisk beat earnings consensus, but participants worried after the company issued downside revenue guidance.

Consumer discretionary stocks received support from a surge in Netflix (NASDAQ: NFLX) and JC Penny (NYSE: JCP). The sector SPDR ETF (NYSE: XLY) lost 0.12% to $41.49 after posting a new all-time high of $41.90.

Netflix surged to the top of the S&P 500, as shares rallied 22% to $116 after a better than expected report in both earnings and revenues and news that the company added new subscribers spurred a short squeeze that boosted the upside move.

Meanwhile JC Penny rallied 18.8% to $40.72 after posting a new 52-week high of $41.24. The move in the shares came after it gave a full year earnings forecast which came in better than Wall Street expectations. The company expects a full-year profit of $2.16 per share, versus an analyst consensus of $1.65 per share. The improved forecast came a day after the department store operator unveiled a new strategy that involves a retooling of their stores and the introduction of a simpler pricing strategy.