Benchmarks ended their two-day rally after minutes of the Federal Reserve’s December policy meeting reflected concerns over the bond buying program. Despite recent concerns about the Fiscal Cliff dilemma, private sector jobs increased in December. But the number of Americans filing for the unemployment benefits surged during the previous week. The materials sector was the biggest loser among the S&P 500 industry groups.
The Dow Jones Industrial Average (DJI) lost 0.2% to close the day at 13,391.36. The Standard & Poor 500 (S&P 500) slipped 0.2% to finish yesterday’s trading session at 1,459.37. The tech-laden Nasdaq Composite Index shed 0.4% to end at 3,100.57.The fear-gauge CBOE Volatility Index (VIX) lost 0.8% to settle at 14.56. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.68 billion shares, higher than the daily average of 6.42 billion shares. Advancing stocks outpaced decliners on the NYSE; as for 51% stocks that rose, 46% stocks moved lower.
Benchmarks returned to negative territory after two back-to-back strong rallies following a resolution to the Fiscal Cliff dilemma. According to the minutes of the Fed’s December meeting released on Thursday, Fed policy makers have different views on bond buying. “A few members” think the Fed should continue bond buying till the end of 2013 while “several others” thought the central bank should stop purchasing bonds “well before” the end of 2013. The central bank’s bond buying program has boosted markets in the past and market experts think that it will continue until 2014 because unemployment rates will not fall fast enough this year.
The minutes also said: “Many participants thought the pace of economic expansion would remain moderate in 2013, before picking up gradually in 2014 and 2015.” Previously, the Federal Reserve had predicted the economy will grow between 2.3% to 3% in 2013.
Lawmakers sealed a deal on the Fiscal Cliff issue on Tuesday but delayed a decision on spending cuts by two months. Investor focus has now shifted to the upcoming war in Congress over spending cuts and raising the federal debt ceiling. According to Moody’s Investors Service, the Cliff deal approved by Congress is not enough to avoid the risk of a downgrade to the U.S. credit rating. Rating agency Standard and Poor's said: “Washington's governance and policymaking had become less stable.”
Despite a recent pull back due to the Fiscal Cliff issue, Automatic Data Processing’s (NASDAQ:ADP) National Employment report revealed that the U.S. private sector added 215,000 jobs in December compared to revised November estimates of 148,000. The report also states large businesses added 87,000 jobs while medium and small businesses added 102,000 and 25,000 jobs respectively during the month. The service-producing sector added 187,000 jobs whereas the goods-producing sector accounted for 28,000 more jobs. Construction and professional/business services added 39,000 and 37,000 jobs respectively. However, the manufacturing sector reported a decline of 11,000 jobs.
Meanwhile, the U.S. Department of Labor revealed that initial claims increased during the previous week. According to the report, the advance figure for seasonally adjusted initial claims increased 10,000 to 372,000 for the week ending December 29 from the prior’s week revised figure of 362,000. This was below consensus estimates of 360,000.
The materials sector was the biggest loser among the S&P 500 industry groups and the Materials Select Sector SPDR (XLB) lost 0.7%. Stocks such as E I Du Pont De Nemours And Co (NYSE:DD), FMC Corporation (NYSE:FMC), PPG Industries, Inc. (NYSE:PPG), Monsanto Company (NYSE:MON) and Ashland Inc. (NYSE:ASH) shed 1.3%, 0.9%, 0.6%, 0.8% and 1.7%, respectively.