Dow Stumped by Fed's Tea Leaves

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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average tumbled again today losing 105 points, or 0.7%, as the Federal Reserve trotted out its eight-times-a-year crystal ball, also known as the minutes of its Open Market Committee. The impending stimulus taper has been at the forefront of the investing world for the last few months, and today, the market got some new insight into the central bank's intentions.

The Fed's minutes did not reveal anything particularly novel, as the notes said that all but one member of the committee, Kansas City President Esther George, agreed that "a change in the purchase program was not yet appropriate." The central bankers also seemed to have a mixed view of improvements in the labor market, noting that the unemployment rate has come down in the first half of the year, but a lot of Americans have given up looking for work or are underemployed.  Members were divided on how soon the taper should start.

The relatively benign update didn't stop the market from panicking, as shares dove initially, and then recovered into positive territory before finishing down over 100 points. The Wall Street consensus seemed to be that the Fed would begin scaling back purchases by the end of the year, as most thought before this afternoon. The Fed's next meeting on the matter will take place September 17-18.

Elsewhere, reports were mixed on the current status of the economy. Existing home sales jumped 6.5% in July, hitting an annual rate of 5.39 million, their highest level in nearly four years. The figure was well ahead of expectations of 5.1 million, and median prices jumped 14% from a year ago. However, a separate housing report was not as promising as the Mortgage Bankers Association showed that applications for home loans fell 4.6% last week, which comes after a 4.7% slide the week before. The drop may indicate that rising interest rates have begun to cool off the housing rally, which has been one of the economy's brightest spots in the first half of the year.

Finally, Hewlett-Packard delivered earnings after hours today, sliding 5.2% after a 1.8% drop during the regular trading session. The PC maker said revenue fell 8%, to $27.23 billion, dropping 11% in its PC division, and declining in all but one business segment, as software sales improved 1%. Overall sales just missed estimates at $27.29 billion, while adjusted EPS of $0.86 matched expectations. CEO Meg Whitman remained confident in the turnaround, saying the company is "making progress" with "significant improvements in our operations and rebuilding our balance sheet." With one quarter left in its fiscal year, HP said it expects adjusted EPS of $3.53 to $3.57. Analysts are projecting a full-year EPS of $3.57.

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