Stocks treaded water most of the day before dipping late in the session on remarks from the Fed about cutting its stimulus program. The Dow Jones Industrial Average (DJINDICES: ^DJI ) finished down 42 points, or 0.3%.
San Francisco Federal Reserve President John Williams said the central bank could begin to cut its bond purchases if the economy continues to improve. The comments turned off investors, as the Fed's $85-billion monthly bond-buying program is seen as a central component to the market rally and the economic recovery. Other remarks from the Fed last Friday also indicated that it was preparing to scale back the stimulus, but a time frame has not been set.
Earlier in the day, investors managed to shake off some concerning economic reports. First, after two straight weeks at five-year lows, the initial unemployment claims tally jumped from 328,000 last week all the way up to 360,000. Analysts had expected just 330,000. Data from just one week is sometimes dismissed as an aberration, as the statistic is volatile, but the numbers could reveal a slowdown in the labor market. Elsewhere, housing starts plunged to 853,000 in April, from 1,021,000 in March, badly missing estimates of 970,000. However, building permits, a leading indicator for housing starts, came in significantly higher than estimated. The Philadelphia Fed also reported a contraction in manufacturing activity in the mid-Atlantic region when an expansion was expected, and the consumer price index showed a greater decline than expected, at -0.4%.
Wal-Mart (NYSE: WMT ) may also have given the market a bit of a scare when it missed estimates this morning, as the retail giant receives about one out of 10 consumer-level non-automotive dollars in the U.S. and is therefore seen as a bellwether for the economy. Shares ended down 1.7%, as the world's No. 1 retailer brought in $1.14 a share, $0.01 below estimates, and revenue edged up just 1%, to $113.4 billion, missing expectations of $115.8 billion. Same-store sales at namesake locations were down 1.4%, while Sam's Club comps were up 0.2%. Management blamed factors including the payroll-tax increase, delays in income tax refunds, and cold weather, for the sales slump. Current-quarter projections also disappointed, as the retailer guided EPS between $1.22 and $1.27. The analyst consensus stood at $1.29.
Not all of today's earnings releases were disappointing, however, as Cisco Systems (NASDAQ: CSCO ) popped 12.6% after reporting earnings last night. The networking specialist said sales in the Americas and emerging markets were strong, as earnings per share of $0.51 beat estimates by $0.02. Gross margin also improved and, during a quarter where its rivals faltered, analysts interpreted the results as outperforming the industry. Cisco also guided results for the current the quarter above the analyst consensus.