The Dow Jones Industrial Average index (DJI) pared early session gains and closed down 68 points, or 0.57%, to 11,953 on Tuesday after the Federal Reserve announced it would maintain interest rates at 0 to 0.25% without taking further action to ease financial tensions and boost the economy before 2012. The NASDAQ Composite closed at 2,579 – down 1.26 percent, and the S&P 500 lost nearly 1 percent – down to 1,225.
Financial stocks reacted negatively to the Fed statement on Tuesday. Morgan Stanley (MS) shares were down 1.37% to $15.17 at market close and JPMorgan Chase & Co. (JPM) stock fell off 2.3 percent to $31.29 per share.
Best Buy Co., Inc. (NYSE: BBY) ended the day down 15.46% to $23.73 per share after its third quarter profit numbers came in lower than expected. Harman International Industries, Inc. (NYSE: HAR) shares finished the session down 7.26% to $36.43.
Urban Outfitters, Inc. (NASDAQ: URBN) gained 5.33% to $27.87 per share by market close on news that its fourth quarter sales outlook had exceeded investor forecasts.
Fed Takes No Action
The Federal Reserve released a statement Tuesday afternoon advising that it would maintain interest rates at 0 to 0.25% in the short-term without taking further action to bolster the U.S. economy, a move that disappointed investors and sent the stock market down from early morning gains. Although Black Friday and Cyber Monday sales were impressive by many counts, some experts and analysts believe the nation’s economy is still struggling to regain momentum as consumers look to save instead of spend for the duration of the holiday shopping season.
The topic of a third round of Quantitative Easing (QE3) has been brought forth by several policy makers as a means to provide further liquidity to the U.S. economy and rekindle consumer confidence that has steadily waned from its 2007 highs. Home prices and other indicators show that the risk of a double-dip recession is still possible in the United States, especially if sovereign debt issues in the Eurozone spread overseas.
It remains unclear whether retailers will be able to unload excess inventory that is left over following the holiday season, or if they will find it necessary to drastically reduce prices in order to reach sales targets.
The Euro index dropped another percentage point during trading on Tuesday as investors continued their flight from European assets in search of the perceived safe-haven of the U.S. Dollar. Germany Chancellor Angela Merkel announced early Tuesday that there would be no immediate expansion of powers to the European Financial Stability Facility (EFSF), which further dimmed regional investors’ hopes of an EU bailout. Under a previously proposed measure by several EU leaders, the EFSF would purchase sovereign bonds from struggling countries such as Italy, Portugal, Spain and others; and then use those bonds as collateral for ECB bailout loans.
Sovereign bond yields for several nations in the Eurozone have risen at an alarming rate in recent weeks as private investors seek premium payment for short-term funding of sovereign debt. Some experts believe that central bank action is tantamount in shoring up the region’s finances and ensuring that countries do not default on their obligations. Although several EU countries have passed austerity measures pledging to reduce government expenditures, none have been able to actually implement the laws in a manner that satisfies investors.
Stock Market Volatility and Your IRA
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