By Saumya Vaishampayan
U.S. stocks drifted lower Wednesday after Federal Reserve
meeting minutes showed officials haven't agreed on a plan for when
and how quickly to raise interest rates.
The Dow Jones Industrial Average fell 40 points, or 0.2%, to
18008. Stocks briefly pared losses in the wake of release of the
Fed minutes.
The S&P 500 slipped four points, or 0.2%, to 2097, and the
Nasdaq Composite Index lost one point to 4899.
The minutes of the Jan. 27-28 policy meeting showed Fed
officials discussed the pros and cons of delaying versus moving
quickly on interest rates, as well as how to remove from their
policy statement an assurance that they would be patient before
raising rates.
Officials are "more inclined to keep rates lower for longer,"
said Sean Lynch, co-head of global equity strategy at Wells Fargo
Investment Institute. "That's still a pretty good backdrop for
stocks," he said.
Utilities stocks, which are viewed as bond proxies because they
pay big dividends, posted the biggest gains on the S&P 500.
Financial stocks, which stand to benefit from higher interest rates
as they can charge more money on loans, were among the biggest
losers.
Treasury prices rose, pushing the 10-year yield down to 2.057%
from 2.141% on Tuesday.
The key for stocks in the long run is how fast the Fed will
raise interest rates, said Anwiti Bahuguna, a senior portfolio
manager at Columbia Management, who helps oversee $67 billion as
part of the global asset allocation team. Fed officials "don't have
room to tighten a whole lot because the recovery is still fragile,"
she said. "If it's just a couple of rate hikes toward the end of
the year...the bull run continues, " she added, as stocks will
remain more attractive than bonds.
Major stock indexes have pushed to or near record highs in
recent sessions, recovering from a turbulent January. The S&P
500 has notched two record closes this year, and the Dow remains
just below its all-time closing high of 18053.71. Part of the
rebound stems from corporate earnings that have come in better than
initially feared, with profit at S&P 500 companies on track to
rise 4.1% from a year ago, according to FactSet.
Volatility has eased in recent sessions as the price of oil
stabilized and as most investors expect there will be an eventual
solution for the debt situation in Greece, investors said.
"It just seems like anytime there's a concern about Greece, the
markets get a little jittery and the next thing you know we're back
at new highs, " said Viren Chandrasoma, managing director of equity
trading at Credit Suisse. "We've seen this movie a number of times
and it always ends well for the equity market," he added.
The CBOE Volatility Index rose 2.1% to 16.13 Wednesday, but is
well off its 2015 closing high of 22.39, set on Jan. 15.
Earlier, investors eyed weaker-than-expected economic reports.
Producer prices fell 0.8% in January from December and were flat
from a year ago, the Labor Department said. The report was the
latest to show how cheaper gasoline has weighed on inflation.
Economists surveyed by The Wall Street Journal had expected prices
to fall 0.4%.
Industrial production rose 0.2% in January from the prior month,
below expectations of a 0.4% increase. James Abate, chief
investment officer of Centre Funds, which has about $1 billion
under management, said the industrial production report supports
his view that economic activity in the U.S. is slowing down, which
will lead the stock market to be flat or fall for the year.
"We're less enthusiastic about the prospects for any sizable
gain in the U.S. stock market as a whole over the year," he said,
adding that stocks are expensive and there's uncertainty about U.S.
monetary policy. The trailing price/earnings ratio for the S&P
500 is 17.6, higher than the 10-year average of 14.6, according to
FactSet.
Mr. Abate said he expects a correction of 10% to 15% in the
short term. That has prompted him to buy put options on the S&P
500 that protect one of his funds against a decline bigger than
10%, he said.
Energy stocks fell 1.6% as oil prices fell, leading the S&P
500 lower. Exxon Mobil Corp. and Chevron Corp. were among the
biggest decliners on the Dow industrials. Crude-oil futures lost
2.6% to $52.14 a barrel.
Warren Buffett's Berkshire Hathaway Inc. and George Soros's
Soros Fund Management sold all their shares in Exxon as of Dec. 31,
according to regulatory filings.
In earnings news, Hilton Worldwide Holdings Inc. said
fourth-quarter revenue rose 7%, beating expectations. The hotel
company gave a soft earnings outlook for 2015. Shares fell
0.2%.
Fossil Group Inc. said fourth-quarter results were hurt by
discounts and negative currency impacts and gave downbeat guidance
for the full year. Shares slumped 17%.
European stocks rose as investors continued to eye developments
between Greece and its creditors. France's CAC 40 gained 0.9% and
Germany's DAX rose 0.6%, ending just below its all-time high.
In other markets, gold futures fell 0.7% to $1199.70 an
ounce.
Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com
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