Benchmarks lost most of the gains that were propelled by the central bank’s announcement of a new stimulus plan and ended nearly flat. Federal Reserve Chairman Ben Bernanke said monetary policy actions were insufficient to negate the Fiscal Cliff’s effects. This statement robbed the market of its gains. The S&P 500 finished in the green for the sixth consecutive day. The materials sector was a major loser, whereas energy was the biggest gainer among the S&P 500 industry groups.
The Dow Jones Industrial Average (DJI) lost 0.02% to close the day at 13,245.45. The Standard & Poor 500 (S&P 500) gained 0.04% to finish yesterday’s trading session at 1,428.48. The tech-laden Nasdaq Composite Index shed 0.3% to end at 3,013.81. The fear-gauge CBOE Volatility Index (VIX) climbed 2.4% to settle at 15.95. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.58 billion shares, slightly higher than the daily average of 6.52 billion shares. Declining stocks outpaced advancers on the NYSE; as for 50% stocks that fell, 47% stocks moved higher.
As expected, the U.S. Federal Reserve announced a new bond buying plan yesterday. Federal Reserve Chairman Ben Bernanke said the central bank will replace the ongoing “Operation Twist” with the new plan. Under “Operation Twist”, the Fed has been buying $45 billion in longer-term bonds, while selling the same amount in short-term debt in another bid to decrease rates.
The Federal Reserve said that in order to boost the economy and lower the longer-term borrowing costs, it will spend $85 billion a month on bond buying. The Fed will spend $45 billion to buy long-term treasuries in addition to the $40 billion per month in mortgage-backed bonds. Fed also said it will continue to maintain short-term interest rate at near zero levels till the U.S. unemployment rate dropped below 6.5%.
However, much of the optimism following the announcement of the plan was eroded after Ben Bernanke’s comments on the Fiscal Cliff. The Fed chairman said actions taken by the central bank were insufficient to negate impact of the Fiscal Cliff of $600 billion in tax increase and spending cuts completely. Bernanke hoped for a quick solution to the Fiscal Cliff issue and said: “I’m hoping that Congress will do the right thing on the fiscal cliff.”
Separately, House of Representatives Speaker John Boehner said: “There were some offers exchanged back and forth yesterday and, you know, the president and I had a pretty frank conversation about just how far apart we are.” He also said: “The longer the White House slow-walks this discussion, the closer our economy gets to the fiscal cliff and the more American jobs are placed in jeopardy.” The crisis will make its impact felt from the beginning of 2013 if Congress fails to seal a deal on the Fiscal Cliff issue.
The energy sector was the biggest gainer among the S&P 500 industry groups and the Energy Select Sector SPDR (XLE) gained 0.4%. Stocks such as Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), TOTAL S.A. (NYSE:TOT), Marathon Oil Corporation (NYSE:MRO) and Royal Dutch Shell plc (NYSE:RDS.A) surged 0.5%, 0.3%, 1.6%, 1.0% and 1.2%, respectively.
The materials sector had a bad run and the Materials Select Sector SPDR (XLB) lost 0.3%. Stocks such as PPG Industries, Inc. (NYSE:PPG), RPM International Inc. (NYSE:RPM), The Valspar Corporation (NYSE:VAL), Sherwin-Williams Company (NYSE:SHW) and PolyOne Corporation (NYSE:POL) tumbled 0.4%, 0.6%, 1.1%, 1.3% and 2.4%, respectively.