Fed Day Ends Mixed as Dow Erases Gains

The Dow closed flat while the Nasdaq advanced more than 1% on Wednesday after the Federal Reserve ended a string of seven straight interest rate cuts and shifted its attention to inflation-fighting. 

Today's Market

The Dow Jones Industrial Average rose 4.40 points, or 0.04% to 11811.83, the Standard & Poor’s 500 index gained 7.68 points, or 0.58%, to 1321.97 and the Nasdaq Composite Index picked up 32.98 points, or 1.39%, to 2401.26. The consumer-friendly FOX 50 rose 8.67 points, or 0.94% to 926.21.

The Dow extended its losing streak to four on Wednesday after it squandered all of an earlier triple-digit rally. The selling was triggered on by another bad day for the U.S. dollar, which declined to two-week lows against the Euro following the Fed decision. Also financial stocks suffered a late-day decline, bringing the broader market with it. 

Boeing (BA) was the biggest decliner on the blue-chip index on Wednesday, taking a big hit after Citi analysts added the company to its conviction sell list. Also, General Motors (GM) ended with big losses after Fitch Ratings slashed its credit rating. 

Tech stocks powered a big rally on the Nasdaq Composite, which ended its three-day losing stretch. Big-name techs like Dell (DELL) and Apple (AAPL) posted solid gains ahead of Research in Motion's (RIMM) earnings release. Level 3 Communications (LVLT) and Vertex Pharmaceuticals (VRTX) led the Nasdaq 100 on Wednesday, rising more than 6% each. 

The Federal Open Market Committee's decision to keep the fed funds rate at the historically low level of 2% was widely expected but still greatly anticipated on Wall Street. The fed funds rate is the amount of interest banks charge each other to lend money. The central bank's statement expressed less concern about a serious economic downturn but more with the potential for inflation to become a serious issue.

"Upside risks to inflation and inflation expectations have increased," the Fed said in its brief statement. 

This Fed decision likely marks a shift in attention away from the struggling economy but toward rising prices and the weakened U.S. dollar. The Fed ended its string of seven consecutive interest rate cuts, which began in September when the economy began to decline.

“They are trying to talk tough in order to keep the dollar steady even though really their hands are tied. The economy is too weak to raise rates and they’d risk causing a recession” by doing so, said Mark Pado, U.S. market strategist at Cantor Fitzgerald. 

The dollar initially rose but then reversed after the FOMC announcement, falling to its lowest level in almost two weeks versus the Euro. Wall Street is betting in futures markets that the Fed will raise rates by 0.5% by the end of the month, possibly as early as its next meeting in September. 

There had been calls by inflation hawks for Fed Chairman Ben Bernanke to raise rates this meeting in an effort to fight inflation. Others on Wall Street felt it would be premature to begin to hike rates before the earlier decreases had time to work their way through the financial system, a process that takes months.

“We definitely need to bake in the current rate period right now. It [would be] inconsistent and inappropriate for the Fed to use the hikes and decreases frivolously," said Frank Davis, director of sales and trading at Lek Securities. 

Wall Street also benefited from a decline in crude oil prices on Wednesday, which tumbled on the latest oil inventory report, which showed crude stockpiles rose by 800,000 barrels last week. Crude oil prices closed at $134.55 a barrel, down $2.45 on the day. 

While the market cheered a pullback in oil prices, crude has still risen more than 40% in 2008 alone. In fact, oil futures have gained each of the last three days, rising almost 4% over that span. 

Wall Street largely shrugged off a pair of economic reports on new home sales and durable goods orders that signaled continued weakness in the nation's economy. 

After the market's close the tech world will turned its attention to BlackBerry maker Research in Motion (RIMM), whose earnings missed estimates by a penny. Shares of RIM plunged more than 10% in after-hours trading on the results and a cautious outlook. 

Corporate Movers

Monsanto (MON) tumbled almost 3% after its fiscal third-quarter revenue missed the Street's lofty expectations. The agricultural company's earnings rose 42% to $1.45 per share, topping estimates by 11 cents. However, its 26% rise in sales to $3.59 billion was shy of the $3.71 billion analysts polled by Thomson Reuters had been looking for. Monsanto also boosted its earnings guidance for the full-year for the fourth time, this time to $3.40 per share. The stock has doubled over the past year as prices have soared. 

ExxonMobil (XOM) rose slightly after the Supreme Court decided to slash the $2.5 billion in punitive damages award following the 1989 Exxon Valdez disaster to $500 million. Earlier federal appeals court halved a jury’s decision to make Exxon pay $5 billion in damages. Exxon has said it already spent $3.4 billion to clean up the spill that impacted 1,200 miles of coastline in Alaska.

InBev warned Anheuser-Busch (BUD) that “time is of the essence” as it reaffirmed its $46 billion offer to acquire the St. Louis-based brewer. InBev, the Belgian-Brazilian brewer, said it has secured financing for the takeover bid, which values A-B at $65 per share. A-B has not yet responded to the offer, which was made public on June 11. The deal has faced political opposition from lawmakers.

Countrywide Financial (CFC) shareholders signed off on the $2.8 billion buyout offer from Bank of America (BAC) on Wednesday. The deal, which was first unveiled in January and is expected to close on July 1, was originally worth $4 billion but has declined as BofA’s share prices has lost value. The vote came as the California attorney general filed suit against the mortgage lender for allegedly using unfair business practices. 

UBS (UBS) reportedly hired investment bank Lazard (LAZ) to conduct a strategic review of its businesses -- fueling speculation the Swiss bank may split its wealth management and investment banking divisions. There has also been more chatter surrounding an interest in UBS on behalf of HSBC (HBC), the New York Post reported. However, the Post also reported that the strategic review could just be an annual internal review.

Pier 1 Imports (PIR) rose sharply after the retailer took its $88 million offer for Cost Plus (CPWM) off the table on Tuesday. The decision comes a week after the board at Cost Plus rejected the deal, which had valued the company at $4 per share. The stock had been much higher earlier in the day. 

MasterCard (MA) agreed to pay $1.8 billion to settle an antitrust suit with American Express (AXP). The 2004 suit was filed by AmEx against Visa (V), eight banks and MasterCard, the second-largest credit-card company. The suit alleged the group had “anti-competitive practices” that prevented use of credit-card products.

Boeing (BA) was downgraded by Goldman Sachs (GS) to "sell" from "neutral", citing the weak economy and the poor health of the airline industry. Goldman lowered its price target to $60 per share -- reflecting a 20% decline in the company's share price. The firm predicted that the weak environment will cause slower orders for new planes. Goldman also added Boeing to its "conviction sell" list.

American Express (AXP) CEO Kenneth Chenault warned that the firm has seen credit indicators "deteriorate beyond our expectations" as business conditions weaken further. He said it's too early to evaluate the impact of these declining indicators. 

Merck (MRK) said the FDA refused to approve the drug maker's request to expand the marketing of its Gardasil cervical cancer vaccine to women 27 to 45 years old. Merck, which is a component of the Dow, said regulators cited "issues" that prevented approval. Gardasil is already approved for women ages 9 through 26. 

Apollo Group (APOL) tumbled about 7% after the for-profit education provider announced the resignation of President Brian Mueller. The company, which operates the University of Phoenix, said CFO Joseph D'Amico will take over as interim president. 

Best Buy (BBY) boosted its quarterly dividend by a penny to 14 cents per share. The new dividend is payable on Oct. 28. 

Data Dump

Wall Street had a muted response to a pair of new reports showing weakness in the economy. 

The Commerce Department said durable goods orders were unchanged in May following a decline the month before. Economists surveyed by Dow Jones had been expecting the report to decline by 0.5%. Durable goods are designed to last long than three years, such as refrigerators. 

Also, the government reported a 2.5% decline in new home sales in May to an annualized rate of 512,000. It marks the sixth time out of the past seven months that sales have declined as the U.S. housing slump continues. Economists surveyed by Dow Jones had been expecting a sales rate of 510,000. Also, median home prices fell 5.7% to $231,000 last month. 

World Markets

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, rose 55.88 points, or 1.64%, to 3460.40. The FTSE 100, London's benchmark index, gained 31.40 points, or 0.56%, to 5666.10.

On the continent, Paris's CAC 40 Index picked up 62.53 points, or 1.40%, to 4536.29 while Germany's DAX rose 81.78 points, or 1.25%, to 6617.84.

In Asia, Japan's benchmark Nikkei 225 Index fell 19.64 points, or 0.14%, to 13829.92. Hong Kong's Hang Seng Index rose 179.14 points, 0.8%, 22635.16.