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Fed to Stay 'Patient'on Rates; Stocks Move Down.

Byline: Jeremy Herron

U.S. stocks fell while the dollar gained as investors speculated the Federal Reserve will boost rates this year as the economy strengthens. Treasuries rose and oil plunged below $45 a barrel as the central bank said inflation will decline further.

The Standard & Poor's 500 Index dropped 0.5 percent at 3:13 p.m. in New York. Energy producers in the gauge plunged 3 percent, while record earnings at Apple Inc. boosted technology shares. The Bloomberg Dollar Spot Index climbed 0.4 percent. The yield on 10-year Treasury notes lost nine basis points to 1.73 percent. West Texas Intermediate crude fell 3.8 percent to $44.47 a barrel. Gold slid 0.5 percent.

The Fed boosted its assessment of the economy and labor market, even as it expects inflation to decline further. Officials are confronting divergent economic forces as they weigh the timing of the first interest-rate increase since 2006. Equities opened higher on Wednesday as Apple and Boeing Co. rallied amid quarterly results, a day after benchmark indexes tumbled on concern that a stronger dollar is eroding profits at large companies.

"On balance, I viewed it as slightly hawkish," Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., said by phone. "The equity markets view it as a June hike still being a potential outcome. It's basically interpreting that the Fed will plow ahead with rate hikes despite low inflation and international woes."

Global Risks

The Fed acknowledged global risks, saying that it will take into account readings on "international developments" as it decides how long to keep rates low. Surprisingly strong job gains argue for tightening sooner, while inflation held down by a plunge in oil prices and a cooling global economy provides grounds for delay.

Policy makers gathered as recent labor market reports show fresh strength, with the jobless rate at a six-year low of 5.6 percent. U.S. employers hired 252,000 workers last month to cap the biggest annual gain since 1999 with almost 3 million jobs.

"The Fed continued to emphasize that any rate hike decisions will be very data-dependent, which has been the norm for quite some time," Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer's Investment Research Inc., said in a phone interview. "People are looking closely at earnings, which has been the story of the volatility in the past week or two. Oil and the strong U.S. dollar are also creating a drag on large multinational companies."

Energy Rout

The S&P 500 earlier erased a gain of 0.6 percent after data showed U.S. crude supplies rose to a three-decade high. That sent West Texas Intermediate crude below $45 a barrel. Denbury Resources Inc. and Nabors Industries Ltd. plunged more than 8.8 percent, with energy shares accounting for the five biggest drops in the S&P 500.

"The energy situation is one where the price of oil is going to be an ugly thing until such time is it's not," Brian Barish, who helps oversee about $11.5 billion at Denver-based Cambiar Investors. "There's just only so much you can do if the dollar's gonna go up 20 percent against the euro."

While the dollar's climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than 77 percent of Standard & Poor's 500 Index members have still beaten analysts' estimates so far this earnings season, according to data compiled by Bloomberg.

Disappointing results from Caterpillar Inc. and Microsoft weighed on U.S. equities Tuesday, while the Dow Jones Industrial Average tumbled 1.7 percent after the strongest dollar in a decade hurt profit at Procter & Gamble, DuPont Co. and Pfizer Inc.

Corporate Results

Facebook Inc. and Boeing are among 31 companies releasing quarterly results Wednesday.

Apple jumped 7.3 percent after reporting a 30 percent advance in quarterly revenue and a 38 percent surge in net income to a record $18 billion. Boeing climbed 6.7 percent after posting profit that beat analysts' estimates. Yahoo! Inc. advanced 0.9 percent after announcing a spinoff of its stake in Alibaba Group Holding Ltd. AT&T Inc., the second-largest U.S. wireless carrier, climbed 0.4 percent after topping profit and sales estimates.

While the U.S. has ended its bond-buying program, the European Central Bank is expanding its stimulus plan. The ECB announced last week it would spend 60 billion euros ($68 billion) a month starting in March on purchases of debt to ward off the threat of deflation in the euro area.

Greek Policy

Greece's 10-year yield rose 87 basis points to 10.35 percent and the rate on five-year notes reached 13.56 percent, the highest since the nation's debt underwent the biggest restructuring in history in March 2012. The ASE Index of stocks extended this week's losses to 15 percent. National Bank of Greece SA and Piraeus Bank SA plunged at least 25 percent today.

Greek Prime Minister Tsipras promised to avoid a "catastrophic clash" with creditors and European governments, he said the new government "will not be forgiven" if it betrays its pre-election pledges to renegotiate the terms of Greece's bailout.

Declines in Greek debt pulled down securities in the euro area's other higher-yielding government-bond markets. Italy's 10-year yield increased six basis points to 1.59 percent. Portugal's climbed 15 basis points to 2.59 percent.

Europe Equities

The Stoxx 600 erased losses in the final minutes of trading to close higher. The gauge on Tuesday halted an eight-day rally that left it at a seven-year high.

Russia's ruble weakened 0.4 percent while the Micex rose 1.6 percent. Russia sold less than its maximum target at its first debt sale after the being cut to junk by S&P.

Petroleo Brasileiro SA led stocks lower in Brazil, tumbling 9.6 percent. The state-run oil company at the center of country's biggest ever kickback scandal failed to reach an agreement on writedowns linked to misconduct and corruption. The Ibovespa gauge slid 1.9 percent.
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Publication:ThinkAdvisor
Date:Jan 28, 2015
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