Stocks dropped on Wednesday after the Federal Reserve acknowledged the sluggish pace of the U.S. economic recovery without hinting at further plans for stimulus.
The Fed said the recovery was proceeding more slowly than it had expected. In his news conference, Fed Chairman Ben Bernanke offered nothing to motivate investors to buy equities.
Without new information from the Fed, investors were left to take profits after a four-day rally that lifted stocks from three-month lows. Some analysts see range-bound trading ahead, with 1,295 among the S&P 500's first targets of resistance.
The comments offered a pretty strong indication that the economy is not growing as fast as a lot of people hoped it would, said Bryant Evans, investment advisor and portfolio manager of Cozad Asset Management, in Champaign, Illinois.
For three months, we could go sideways or down because it could take some time before the economy can build on what we have here.
Expectations about a second round of Fed stimulus last fall helped ignite an extended rally in stocks. There is some hope the Fed will conduct another round of asset buying, but most economists see it as unlikely at this time.
The Dow Jones industrial average <.DJI> slid 80.34 points, or 0.66 percent, to 12,109.67 at the close. The Standard & Poor's 500 Index <.SPX> dropped 8.38 points, or 0.65 percent, to 1,287.14. The Nasdaq Composite Index <.IXIC> tumbled 18.07 points, or 0.67 percent, to 2,669.19.
The S&P 500 is down 5.6 percent since its early May highs.
The market was up four days in a row coming into today, the rally has been OK, but it hasn't shown enough strength to break the downside momentum the market has had since May, said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.
Another indicator of pessimism: Net short positions by hedge funds on the S&P 500 have risen recently, according to Societe Generale cross-asset research.
Weighing on tech, Adobe Systems Inc
In its statement, the Fed, as widely expected, said it will maintain interest rates at exceptionally low levels for an extended period. It also reiterated it was ending its $600 billion bond-buying program at the end of the month.
A spate of weaker-than-expected economic data has underscored fears that the recovery is faltering, though, and raised worries about how the economy will fare without more support from the government.
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(Reporting by Caroline Valetkevitch; Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)