Stocks Closed Lower on a Steady Fed

Published on Wednesday, 01 August 2012 18:07 Written by Christopher Lynn

New York, August 1^st (TradersHuddle.com) – Stocks ended lower in a choppy session after the Fed disappointed investors, maintaining current policy and failing to introduce new measures to boost economic activity. The central bank acknowledge the economy slowdown in the first half of the year, saying that if conditions warrant it will provide more stimulus. Economic data was mixed, with a better than expected report on private employment, while a separate survey show manufacturing in the U.S. contracted in July.

The Dow Jones Industrial Average lost 32.47 points, or 0.25%. The S&P 500 index fell 3.96 point, or 0.29%, while the NASDAQ dropped 19.31 points, or 0.66%.

The market started with some upside ahead of the FOMC decision later in the day and after the ADP private employment report was better than expected at 163,000 versus consensus for a gain of 125,000. Participants in the equity market show little reaction to the employment data, while precious metals saw a pullback, as it weakened the argument for more quantitative easing from the Fed. European markets were mixed after euro zone PMI data showed manufacturing slumping to a new three-year low.

Individual stock volatility surged at the start of trading, resulting from a tech glitch at market maker Knight Capital Group. The issue occurred in the company’s market maker unit related to 150 stocks listed in the NYSE. The glitch forced the exchange to review trades in about 140 stocks between 9:30 am and 10:15 am, due to the unusual activity. Shares of Knight Capital (NYSE: KCG) were punished, tumbling 32.8%, as the Exchange announced plans to cancel trades in six stocks that were affected by trading glitches.

Additional economic data failed to impress like the ADP survey, as the Institute for Supply Management’s manufacturing index came in at 49.8 for July, an indication of contraction in the sector. Meanwhile, June construction spending, climbed 0.4% after gaining 0.9% in the prior month.

Stocks had managed to move to the upside amid choppy trading, but erased gains and moved into negative territory after the Fed held back from new policy action, but acknowledging that economic activity decelerated somewhat over the first half of the year. The central bank added that it would continue to hold interest rates low through at least 2014 and continue Operation Twist through the end of the year. However after participants digested the Fed news, stocks regained some footing and pare losses, pushing the major benchmark indices to end mixed for the session.

The auto sector was in focus, with July auto sales providing cautious optimism over the state of the U.S. economy, as the annual rate of sales held above the key 14 million mark. Both General Motors (NYSE: GM) and Ford (NYSE: F) reported an overall sale decline for July from the prior year, citing lower fleet sales. Both said that retail sales at dealerships held up last month, with transactions prices actually moving higher. GM sales dropped 6.4%, with its shares falling 0.25%, while Ford sales declined 4%, with shares losing 1.63%.

Meanwhile, the Chrysler group reported a 13% jump in sales, logging its best July in five years, while the Japanese automakers reported double digit gains from last year. Sales at Toyota Motors (NYSE: TM) surged 26.1%, while at Nissan jumped 16.2%. Volkswagen continued to show significant growth, with its sales in the U.S. gaining 27%.

Among the S&P 500 sectors, it was a mixed bag, industrials, utilities, and consumer staples logged the worst performances, while energy, healthcare, materials, and financials gained. Crude oil gained on the day after the Energy Department reported that inventories fell by 6.5 million barrels last week versus a forecast for a 0.7 million-barrel drawdown. In the energy space, Pioneer Natural Resources (NYSE: PXD) rallied to the top of the sector, with shares jumping nearly 6% after the company missed earnings expectations, but beat on the top line, as revenues climbed 14.8% from a year ago to $924.7 million.

Phillips 66 (NYSE: PSX) was another top performer in the sector, after the company beat earnings expectations and its board approved a stock buyback program of up to $1 billion. Phillips said it earned $2.23 per share, excluding non-recurring items, $0.48 better than consensus. Yesterday, Barclays upgraded the stock to Overweight from Equal Weight, while bumping its target price to $60 from $37. Shares of Phillips 66 gained 1.8% after posting a new all-time high of $40.18.

Financials were not able to move to the upside, despite good performance from insurers. Allstate (NYSE: ALL) rallied 6.1% after posting better than expected earnings on revenue that was slightly below consensus. The property casualty insurer logged a new 52-week high of $37 after it earned $0.86 per share, $0.29 better than consensus on revenues that climbed 3.2% from a year ago to $6.67 billion. Rival Travelers (NYSE: TRV) gained more than 1%, posting the biggest percentage gain in the Dow Jones Industrial Average.

But not all was positive in the financial sector, shares of the New York Stock Exchange (NYSE: NYX) slumped 2.2% after this morning’s trading issues, and Genworth Financial (NYSE: GNW) plunged 11%, tumbling to the bottom of the S&P 500 Index, after missing quarterly earnings on revenue that fell 5% from a year ago.

In tech land, Frontier Communications (NASDAQ: FTR) surged to the top of the S&P 500, as shares rallied 10.71% to $4.34 positive quarterly results. Electronic Arts (NASDAQ: EA) also outperformed after it announced a new stock repurchase program of up to $500 million. The company issued mixed guidance after saying that its quarterly loss was slightly better than expected on revenues that were just shy of consensus.

Other quarterly results in the sector were not as positive, with Mastercard (NYSE: MA) falling more than 2% after the global payment solutions company

Also, Apple (NASDAQ: AAPL) lost 0.65% to $606.81, giving back some of its gains from earlier in the week. The stock jumped above $600 per share, practically erasing all of the losses from its big earnings miss last month on reports the tech giant was gearing up to unveil its iPhone 5 and new iPad mini on September 12^th. The stock seems to have left behind earnings worries, as participants focus on the highly anticipated release of the new redesigned iPhone.

Elsewhere in media world, Comcast (NASDAQ: CMCSA) rallied 3% to $33.55 after reporting a higher-than-expected quarterly profit as it benefited from customer additions for its Internet and phone services. Revenue climbed 6% to $15.2 billion. Meanwhile, Time Warner (NYSE: TWX) gained 1.23% to $39.60 despite its net income in its film, TV, entertainment and publishing units fell. The revenue for the media conglomerate fell 4%.