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Federal Reserve Chairman Ben Bernanke’s statement that the central bank does not have tools to combat the impending “fiscal cliff” dilemma ended benchmarks’ two-day rally. Moreover, a report from the American Petroleum Institute showed crude oil supplies have dropped in the previous week. Hewlett-Packard reported a dismal fourth-quarter performance. The company also said $5 billion has been charged due to “accounting improprieties”. These factors impacted the energy and technology sectors, respectively. However, the housing sector enjoyed decent gains after data suggested that housing starts increased in October.
The Dow Jones Industrial Average (DJI) slipped 0.1% to close the day at 12,788.51. The Standard & Poor 500 (S&P 500) rose 0.1% to finish yesterday’s trading session at 1,387.82. The tech-laden Nasdaq Composite Index gained 0.02% to end at 2,916.68. The fear-gauge CBOE Volatility Index (VIX) dropped 1.1% to settle at 15.08. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.6 billion shares, significantly lower than the year-on-year daily average of 6.5 billion shares. Advancing stocks outpaced decliners on the NYSE; as for 54% stocks that rose, 41% stocks moved lower.
Benchmarks ended flat on Tuesday after rallying for two consecutive days, propelled by optimism about positive developments regarding the fiscal cliff. The Dow had surged 207 points on Monday and registered its best day in two months. However, the blue-chip index fell as much as 94 points yesterday after Federal Reserve Chairman Ben Bernanke made a discouraging comment about the impending fiscal cliff.
Speaking to the Economic Club of New York, Ben Bernanke said that the central bank is not ready to shield against the impending fiscal cliff if Congress fails to reach a deal to avoid it. He said: “If the economy goes off the broad fiscal cliff, I don't think the Fed has the tools to offset that”. According to market experts, the fiscal cliff need to be resolved or else it will dent the growth of the economy and could possibly result in another recession. “So it's important for Congress to address the fiscal issues soon,” Bernanke added.
Ben Bernanke also said: “We’re going to do what we can to support ongoing recovery in growth and jobs and create the demand for output, the demand for firms’ products that will remove that uncertainty about the future sustainability of the recovery”.
Meanwhile, the U.S. Census Bureau and the Department of Housing and Urban Development jointly announced that building permits decreased in October by 24,000 to a seasonally adjusted annual rate of 866,000 from revised September figures of 890,000. Building permits surged 29.8% from October 2011. However, the report mentioned that housing starts increased 3.6% to a seasonally adjusted annual rate of 894,000 in October from September’s revised figure of 863,000. This was below consensus estimates of 840,000.
On Monday, the National Association of Realtors had reported a 2.1% increase in existing home sales in October. Thus, positive housing starts data came at the right time and helped housing stocks to continue their winning momentum. The SPDR S&P Homebuilders (XHB) surged 2.1%. Stocks such as The Home Depot, Inc. (NYSE:HD), Toll Brothers Inc (NYSE:TOL), Meritage Homes Corporation (NYSE:MTH), PulteGroup, Inc. (NYSE:PHM) and Lowe's Companies, Inc. (NYSE:LOW) jumped 0.8%, 2.9%, 2.6%, 5.4% and 1.4%, respectively.
Coming to corporate results, Hewlett-Packard Company’s (NYSE:HPQ) shares plunged 12.0% after the company reported a fourth-quarter loss after including accounting charges. Company CEO Meg Whitman said $5 billion has been charged due to “serious accounting improprieties” related to its acquisition of software company Autonomy. HP’s market value has come down to $23 billion from $100 billion a couple of years ago. Best Buy Co., Inc. (NYSE:BBY) tumbled 13.0% after it reported a third-quarter net loss of $13 million.
Hewlett-Packard’s quarterly results affected the technology sector and the Technology SPDR (XLK) lost 0.4%. Stocks such as Apple Inc. (NASDAQ:AAPL), SanDisk Corporation (NASDAQ:SNDK), Microsoft Corporation (NASDAQ:MSFT) and Super Micro Computer, Inc. (NASDAQ:SMCI) lost 0.9%, 1.2%, 0.1% and 1.3%, respectively.
On the international front, Moody downgraded France to Aa1 from AAA. The agency indicated that this was due to an ambiguous fiscal outlook arising out of gloomy economy conditions. French finance minister Pierre Moscovic expressed his disappointment with the agency’s decision.