By Alexandra Scaggs
U.S. stocks fell broadly Wednesday as a renewed decline in oil
prices weighed down the energy sector.
A statement from the Federal Reserve that it would remain
"patient" when it comes to any interest-rate increases failed to
give stocks a lift, traders said. Investors had expected the Fed to
refrain from making any policy changes at the two-day meeting which
ended Wednesday.
The Dow Jones Industrial Average dropped 195.84 points, or 1.1%,
to 17191.37. The S&P 500 fell 27.39 points, or 1.4%, to
2002.16, and the Nasdaq Composite Index lost 43.50 points, or 0.9%,
to 4637.99.
Energy shares in the S&P 500 tumbled 3.9%, as crude-oil
futures resumed their monthslong decline, falling 3.9% to $44.45 a
barrel. Fourth-quarter profits of energy companies are expected to
shrink by 25% from the previous year, according to FactSet, as the
oil-price dive weighs on their bottom lines.
The Fed statement said U.S. economic growth remains "solid," and
that the central bank would watch financial and international
developments before raising rates. Investors have been parsing
recent statements from Fed officials for clues about when they
could raise interest rates, a move widely expected this year.
Analysts say that low interest rates in the U.S. have helped
support stock-market gains, since stocks look attractive compared
with low-yielding government bonds, and low borrowing costs give a
boost to corporate profits.
"They delivered what the market expected," said Chris Gaffney,
senior market strategist at EverBank Wealth Management. He said the
Fed remains on track to raise rates midyear, which could mean more
bumpy trading in the U.S. stock market.
U.S. Treasury bonds rallied after the Fed statement, pushing the
yield on the 10-year note down to 1.723%, its lowest level in more
than a year.
Because of the recent strength in the dollar, EverBank's Mr.
Gaffney thinks that U.S. large-cap stocks could lag behind
small-cap shares, which have lower exposure to international
markets and currency fluctuations. The U.S. dollar rally has been
driven, in part, by diverging monetary policies from global central
banks: As the Fed prepares to raise rates, European and Asian
central banks have introduced stimulus efforts.
"We're seeing a lot of central banks starting to devalue their
currencies...but the U.S. is on a different path," said Mr.
Gaffney. He is bullish on European stocks, since the European
Central Bank last week introduced a bond-buying program.
Technology stocks outperformed, with the tech sector of the
S&P 500 slipping just 0.1%. Apple Inc. rallied 5.7% after "
staggering" demand for iPhones helped the company beat even the
most bullish Wall Street forecasts.
"Apple put up very strong numbers...[which is] good following a
day that was a relative bloodbath," said Brian Fenske, head of
sales trading at ITG.
Still, the tech sector extended its 3.3% drop from Tuesday, when
a disappointing earnings report from Microsoft Corp. sent that
stock down more than 9%. Microsoft shares fell an additional 3.4%
on Wednesday.
After Apple's report, stocks in the S&P 500 are on pace for
1.3% fourth-quarter earnings growth, according to FactSet, slightly
above analysts' projections of 1.1% at the start of reporting
season.
But without the tech giant's 38% profit growth, S&P 500
earnings are on pace for a yearly decline of 0.5%. Profits have
been weighed down by worse-than-expected bank results and the
impact of falling oil prices on energy companies.
Among Dow components, Boeing Co. jumped 5.4% after it posted
better-than-expected quarterly results. But the company gave a weak
outlook for profit in 2015, citing the possibility that the dive in
oil prices could damage demand for fuel-efficient planes.
AT&T Inc. slipped 0.4% after fourth-quarter earnings and
sales narrowly beat Wall Street's expectations. The
telecommunications company's results indicated some strain from
higher competition among carriers.
Adding to investors' jitters was a continuing slide in Greek
bonds and stocks, after last weekend's election of a new leftist
government. Investors fear that Syriza's victory could lead to
confrontation between Greece and its creditors. Stocks of other
indebted countries fell as well, with Spain's IBEX 35 down 1.3% and
Italy's FTSE MIB slipping 0.8%. Germany's DAX Index gained
0.8%.
In other markets, gold futures slipped 0.5% to $1285.90 an
ounce.
In other earnings news, Yahoo Inc. fell 3.2%, erasing early
gains after it announced it would spin off tax-free its holdings in
Alibaba Group Holding Ltd. Its per-share earnings beat analyst
forecasts.
Electronic Arts Inc. rallied 13% after the videogame maker
reported strong results from the holiday-shopping season, exceeding
Wall Street's forecasts for its quarterly earnings and revenue.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com
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