U.S. stocks pull plug on extending rally
NEW YORK (MarketWatch) -- U.S. stocks lost much of Thursday's gains after Federal Reserve Chairman Ben Bernanke said the central bank would review the economy before making a decision on further stimulus.
The near-neutral finish follows Wall Street's best session of the year.
"The strength yesterday in equity markets is not sustainable, with Europe still in trouble and global growth still slowing," said Jim Russell, chief equity strategist for U.S. Bank Wealth Management.
After a 140-point climb, the Dow Jones Industrial Average (DJIA) ended at 12,460.96, up 46.17 points, or 0.4%. With one more session left in the week, the Dow is up 2.8% from last Friday's close, aided by Wednesday's nearly 287-point jump.
Halting a winning run at three sessions, the S&P 500 Index (SPX) finished fractionally lower at 1,314.99.
Also breaking a three-day run higher, the Nasdaq Composite (COMP) fell 13.7 points, or 0.5%, to 2,831.02.
For every eight stocks declining, roughly seven gained on the New York Stock Exchange, where nearly 585 million shares traded. Composite volume topped 4.1 billion.
The major indexes trimmed gains as Bernanke's words proved less concrete than some might have hoped. Read full story about Bernanke's testimony.
"The markets were maybe looking for him to be a bit more definitive or dovish in his approach, so it's a mild disappointment, but we didn't think an imminent signal would be sent," said Russell.
"Bernanke is looking to fiscal and governmental leaders to bring fiscal-policy ideas to the table, and so far they've fallen short. There are limits to monetary policy, and we're either seeing them or close to it," he said.
Looking for a balance
Oil and gold futures also ended lower after the Bernanke testimony.
With less than two weeks before the next Federal Open Market Committee meeting, Bernanke "wasn't going to be more explicit," emailed Peter Boockvar, equity strategist at Miller Tabak.
Stocks had spent nearly all of Thursday's session on higher ground after China cut its interest rate in a bid to bolster the globe's second-largest economy. The move fed into expectations that central bankers around the globe would move to boost growth.Read full story about China rate cut.
China has been "overt about saying we're not happy with the current rate of growth, and taking interest rates down is within their tool box," said Russell.
"We think additional rate actions will be executed by China this year, two or three total of which we got one today," said Russell, who adds that at 6.3%, China's interest-rate environment differs greatly from that in the U.S., where the Fed's key rate stands near zero.
Late Wednesday, Fed Vice Chairman Janet Yellen said the U.S. economy is still vulnerable and could warrant further stimulus. Read more on Yellen's comments.
"If we had to guess, we would expect the Fed to extend Operation Twist, which is due to shut down or expire on June 30," said Russell, who adds the Fed might vary its purchases from Treasury bonds to "mortgage bonds or other types to keep rates on the long end of the yield curve low."
On the data front, the count of first-time applicants filing for jobless benefits declined last week, with claims down to 377,000 from a revised 389,000 the week before. Read more on jobless claims.
"This is what we want to see, claims coming down. So it was a nice, moderate surprise," said Russell of the weekly data.
But, "we are cognizant that with the level of intensity of the headlines coming out of Europe that consumers and perhaps even business leaders are taking some sort of pause to hiring and spending," Russell added.