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Stocks slide on weak earnings; Fed cuts stimulus

January 29, 2014 - 9:13pm

NEW YORK — Stock investors had plenty to dislike on Wednesday.

Disappointing earnings from big U.S. companies, ongoing jitters in emerging markets and more cuts to the Federal Reserve’s economic stimulus combined to push stocks lower for the fourth day out of the last five.

Boeing slumped after the plane maker said its 2014 revenue and profit would fall short of analysts’ expectations as its defense business slows and it delivers more of its 787 planes, which are less profitable. AT&T, the largest U.S. telecommunications company, fell after its outlook for the year disappointed investors.

Currencies including the Turkish lira and the South African rand fell against the dollar despite efforts by central banks in those countries to stem the declines by raising interest rates. Investors say those tighter credit policies, which can restrict lending, come with risks.

“If the central banks out there continue to hike interest rates, they are going to destroy economic activity,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “That will impact the global economy as well.”

The Standard &Poor’s 500 index fell 18.30 points, or 1 percent, to 1,774.20. The Dow Jones industrial average fell 189.77 points, or 1.2 percent, to 15,738.79. The Nasdaq composite dropped 46.53 points, or 1.1 percent, to 4,051.43.

Stocks opened lower in response to the lackluster earnings news. The market added to its declines after the Fed’s announcement at 2 p.m. Eastern time.

The Fed said it will lower its monthly bond purchases by $10 billion to $65 billion because of a strengthening U.S. economy. The Fed is cutting back its bond purchases, which have held down long-term interest rates, even though the prospect of reduced stimulus has rattled global markets.

Investors should view the Fed’s move as a vote of confidence in the economy because it means the central bank sees the recovery as more entrenched, said Dan Genter, chief investment officer at RNC Genter Capital Management.

The S&P 500 has dropped nearly 4 percent since concerns about developing the emerging market jitters first surfaced last Thursday. That’s when a survey showed that manufacturing in China, the world’s second-biggest economy, was slowing in January.

Stocks have extended their declines as emerging market currencies have been battered in recent days.

Bond prices rose, even after the Fed said it would reduce it purchases. Investors are looking to buy safer assets on concern that global growth could slow.

The yield on the 10-year Treasury note fell to 2.69 percent from 2.75 percent. The yield on the note is the lowest it’s been since November. It climbed as high as 3 percent Jan. 3.

“You would think the Fed buying less bonds would lead to higher yields,” said Jonathan Lewis, Chief Investment Officer at Samson Capital Advisors. “But it’s about context … we have turmoil in emerging markets, and that is raising concerns about the future path of global growth.”

Stocks that reacted to earnings news Wednesday included Boeing, which fell $7.31, or 5.2 percent, to $129.78.

AT&T fell 39 cents, or 1.2 percent, to $33.31 after its outlook for the year disappointed investors. The phone company said its forecast “assumes no lift from the economy.” AT&T predicted earnings in the mid-single digit range.

Dow Chemical rose $1.67, or 3.9 percent, to $44.73 after the company increased its quarterly dividend and expanded its share-purchase program.

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