Stocks Give Up Early Gains Despite Fed Caution

Stocks Give Up Early Gains Despite Fed Caution

Dow Jones Industrial Average investors presumably got the news they were looking from the Federal Reserve today, but that failed to move the blue chips higher, as the index finished down 21 points, or 0.14%, despite a strong start that saw it hit an intraday trading high at 15,634.

For months, Wall Street has been fearing the Fed's imminent taper of its $85 billion monthly bond-buying program, but in its update today, the central bank gave no indication that it was going to ease off the throttle. In fact, it downgraded its assessment of U.S. economic growth from "moderate" to "modest." Despite the lower evaluation, Chairman Ben Bernanke said he expects growth in the second half to pick up. Earlier today, the Commerce Department reported second-quarter GDP growth 1.7%, ahead of estimates of 1.1%, but still below the level of growth in a healthy economy. The first-quarter GDP growth estimate was also revised down from 1.8% to 1.1%, essentially negating the second-quarter beat. Also this morning, ADP reported that 200,000 private-sector jobs were added this month, ahead of estimates of 175,000, which helped drive stocks higher this morning. The official jobs report from the Department of Labor will come out Friday. Economists expect to see a total of 175,000 jobs added in July. Finally, the Chicago PMI edged out estimates at 51.5, coming in at 52.3, which indicates a modest manufacturing expansion for the month.

Turning to the Dow, American Express was the blue chips' worst performer, falling 1.9% in response to a court decision that threatens a key revenue stream for the credit card issuer. A judge in Washington today said a Federal Reserve-designed limit on debit card swipe fees--what banks get every time a retailer swipes your debit card--were too high at $0.21 per transaction, and said that the cap must be lowered. The Fed may appeal the decision, which threatens credit card companies as they cut from the banks for each transaction. Rival Visa finished down 7.5% on the news, while MasterCard was down as much as 5.7% before recovering.

Verizon wasn't far behind, falling 1.9% a day after a 2% drop because of a post-earnings jump by rival Sprint. The catalyst for today's slide appeared to be resistance in Canada toward Verizon's plan to buy Wind Mobile and enter the wireless market north of the border. Canada's three largest wireless providers and its largest union have claimed that the United States' No. 1 telecom would have an unfair advantage because of rules that give new entrants benefits over veteran enterprises. Industry Minister James Moore actually stood by the plan to increase competition, and allow Verizon to come in, but the heated debate shows the difficulty Big Red may face ahead. With the telecom giant already holding the top spot in mature American telecom market, it needs new growth opportunities such as in Canada. Buying out Vodafone's stake in its wireless business is another option that Verizon has pursued, thus far unsuccessfully.

Finally, UnitedHealth Group was the Dow's biggest gainer, finishing up 0.8%, as peer Humana gained2.2% after beating earnings estimates. Though UnitedHealth already reported earnings this quarter, beating estimates as well, Humana's report helps beef up confidence in United as the two are both heavily in the Medicare Advantage insurance program.

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