The Federal Reserve’s downgrade of its economic outlook stoked fears of a delayed economic recovery. The Fed reduced its forecast for economic growth, in the current year, from its earlier range of 3.2% to 3.7% to a lower range of 3.0% to 3.5%. In the first quarter of 2010, GDP grew at an annual rate of 2.7%.
The central bank added that the unemployment rate is now expected within a range of 9.2% to 9.5% for 2010, which is slightly worse than the previous range of 9.1% to 9.5% it provided in April. The unemployment rate stood at 9.5% in June and averaged 9.7% in the first half of 2010.
The Federal Open Market Committee indicated that it sees signs of an expanding economy, with positive trends in production and spending. However, the pace of growth will probably be slower than expected, in view of the fiscal challenges confronting European countries.
The Commerce Department provided disappointing news that retail sales declined 0.5%, in June 2010; the second decline in consecutive months. Shares of major retailers such as J. C. Penney JCP, Macy's M and Target TGT all fell after the monthly sales report. The consumer discretionary sector in the S&P500 gave up 0.5%.
The Dow moved up 0.04% to 10,366, the Nasdaq rose 0.35% to 2,249, while the S&P500 fell 0.2% to 1,095. Small- and mid-caps were, however, in the red with the S&P MidCap 400 index slipping 0.2% and the S&P SmallCap 600 index sliding 0.4%. The CBOE volatility index was below 25 at the end of business. For every upward moving stock, there was more that one falling on the NYSE, where volume was over 1 billion.
A report suggesting that 11 banks in Europe could fail stress tests may have slightly dampened sentiment for the banking sector. Financial sector stocks were weak on Wednesday with JP Morgan Chase JPM down 0.7% and Bank of America BAC off by 0.3%.
Technology shares were in positive territory, for the most part, with Intel INTC up 1.7%, Cisco CSCO gaining 2.8%, and Hewlett-Packard HPQ rising 1.2%. On Tuesday, Intel reported higher profits indicating that large corporations started investing in computers possibly reversing the drop in corporate investments for technology upgrades during the recession. Intel’s surge in profitability, and its upbeat forecast, is taken as a favorable sign for the economic outlook.
Bond prices firmed up in response to the weaker economic outlook. The yield on the benchmark 10-year Treasury note dropped to 3.05% from 3.13% late on Tuesday.
Zacks Investment Research© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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