Stocks fall after Fed’s weaker economic outlook
NEW YORK (AP) – A weaker economic forecast from the Federal Reserve snapped the stock market’s six-day winning streak.
The Dow Jones industrial average was down almost 50 points Wednesday, while the broader market indexes fell marginally. Bond prices rose as investors, again uneasy about the strength of the economic recovery, went in search of safe investments.
The Fed’s economic forecast was only slightly more downbeat than the outlook issued in April. And investors have been well aware that the country faces a bumpy recovery. But the Fed’s assessment was still a sharp reminder of the fact that economic growth won’t come easily.
Investors who were upbeat on Tuesday over a strong start to second-quarter earnings reports, were already selling before the Fed release, and then stepped up their pace. The market’s initial reaction was fairly mild, perhaps because of the optimism expressed by companies including Intel Corp. and Alcoa Inc.
The Fed lowered its projection for the gross domestic product, the broadest measure of the economy, and said it will grow between 3 percent and 3.5 percent this year. That’s down from the 3.2 percent to 3.7 percent forecast in April.
The central bank also said the unemployment rate, now at 9.5 percent, will at best fall to 9.2 percent. In its April forecast, the Fed had a slightly lower bottom number of 9.1 percent.
The Fed also released minutes from its June 22-23 meeting, at which it found that “economic developments abroad” could hurt the U.S. economy. That’s a reference to the debt crisis that began in Greece and threatened to spread to other European countries.
In afternoon trading, the Dow fell 47.16, or 0.5 percent, to 10,315.56. The Standard & Poor’s 500 index fell 6.21, or 0.6 percent, to 1,089.13, while the Nasdaq composite index fell 2.68, or 0.1 percent, to 2,239.35.
Losing stocks were ahead of gainers by 2 to 1 on the New York Stock Exchange. Volume came to 611.6 million shares.
Earlier Wednesday, there was disappointing economic news from the Commerce Department, which said June retail sales fell 0.5 percent. That’s worse than the 0.2 percent decline forecast by economists polled by Thomson Reuters. However, excluding autos, sales were down 0.1 percent, in line with expectations.
Shares of retailers including J.C. Penney Co., Macy’s Inc. and Target Corp., all fell after the monthly sales report.
Late Tuesday, Intel reported its biggest quarterly profit in a decade as large corporations started buying new computers for employees. Companies have been reluctant to upgrade technology during the recession, so a return of spending could be a sign corporations are ready to start expanding their businesses again and hire new workers.
Intel’s profit and outlook, which surpassed analysts’ forecasts, are considered good signs for the economy because the chipmaker manufactures 80 percent of the processors that run PCs and has a large global reach.
Intel, which released its results after trading ended Tuesday, jumped 2 percent. Other chipmakers, including Advanced Micro Devices Inc., followed Intel higher.