GDP Experiences Shrinkage; Stocks Retreat On Growth Worries; Europe Falls After US Economic Data

Wed pic

[Chart courtesy of MarketWatch.com]

US equities finished lower Wednesday, dragging the index averages off five-year highs after the Federal Reserve said economic growth had paused following the release of a government report that showed the US economy contracted in the fourth quarter.

The Federal Open Market Committee kept interest rates unchanged at near zero and maintained its aggressive bond-buying program. The central bank said it will keep purchasing bonds at the rate of $85 billion a month after concluding its two-day policy-setting meeting today.

Earlier in the day, the Commerce Department said the economy contracted at a 0.1 percent annual pace in the final quarter of last year, falling short of the 1 percent growth projected by economists.

Gross Domestic Product, the aggregate of all goods and services produced, fell to its lowest level since the second quarter of 2009, when the economy was still in recession. Today’s report, however, contained a few bright spots such as an uptick in business investment, consumer spending and home building, suggesting the pause was probably due to bad weather and other transitory factors, and the underlying economy possibly grew at around 2 percent, if you can believe this type of Main Stream Media spin.

Separately, payroll-processor ADP Research Institute said US companies added 192,000 workers in the fourth-quarter, higher than the 175,000 analysts were expecting. Today’s better-than-expected rise comes ahead of Friday’s nonfarm-payrolls report by the Labor Department for January.

The Dow Jones Industrial Average (DJIA) slipped 44 points after reaching its highest level since 2007 yesterday while the S&P 500 Index (SPX) fell 6 points with industrials sliding the most and utilities the sole winner among its 10 business groups.

Treasury prices continued to slide Wednesday with the 30-year Treasury bond yields trading at near nine-month highs after the US Federal reserve indicated it will continue to buy Treasury bonds to stop the economy from slowing down.

Bond prices pared some losses and the benchmark 10-year yield slipped from a fresh nine-month peak as the Federal Reserve’s interest rate statement gave some reprieve to the struggling Treasury bond market though traders warned the market remains vulnerable to a sell off in the days ahead.

European stocks declined the most this year after data showed the world’s largest economy contracted unexpectedly in the fourth quarter and investors turned wary ahead of the conclusion of Federal Reserve’s first policy meeting in 2013. European markets closed before the Fed published its FOMC statement at 2.15 pm New York time.

The Stoxx Europe 600 index fell 0.6 percent to 288.63 in London after touching its highest closing level since February 2011 yesterday.

The DAX 30 index lost 0.5 percent in Frankfurt, dragged lower by Bayer AG.

The CAC 40 index shed 0.5 percent in Paris, weighed down by banks BNP Paribas SA and Credit Agricole SA. Both slipped more than two percent in today’s session.

Our Trend Tracking Indexes (TTIs) ended up mixed as the Domestic TTI dropped and settled at +2.87%, while the International TTI inched slightly higher to +11.37%.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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