U.S. equities closed mostly lower on Wednesday but well off their worst levels of the session as market concerns about ongoing economic pressures and political uncertainties eclipsed lower oil prices and better than expected July factory orders data, which showed the manufacturing sector holding up surprisingly well in spite of general economic weakness.
Anecdotal evidence of more widespread economic deterioration in the Federal Reserve's Beige Book helped to confirmed investors' concerns about the economy. Business contacts in a few districts said high energy and other input costs were prompting them to raise their selling prices, while wage pressures were moderate.
On Wednesday, the Dow Jones industrial average finished 15.96 points, or 0.14%, higher at 11,532.88. The broader S&P 500 index was down 2.59 points, or 0.20%, at 1,274.98. And the tech-heavy Nasdaq composite index slid 15.51 points, or 0.66%, to finish at 2,333.73.
Strength in such blue-chip stocks as Bank of America (BAC) and JPMorgan Chase & Co. (JPM), as well as retailers like Home Depot (HD) and Wal-Mart Stores (WMT) offset weakness in commodities-related and technology names such as Intel (INTC) and Qualcomm Inc. (QCOM), S&P MarketScope said.
Bond prices moved higher, while a stronger dollar index continued to put pressure on commodity prices.
One fact underlined by the Beige Book was the apparent intransigence of the credit crisis. Most Fed districts reported easing demand for loans, especially for residential and consumer loans, while lending to businesses was mixed over the past six weeks. For the first time, all districts reported that loan standards had tightened, with four districts citing deterioration in credit quality and a fifth district saying it expected it to decline.
That message was reinforced by remarks that Boston Fed President Eric Rosengren made before the Chamber of Commerce in Manchester, N.H. on Wednesday, in which he criticized the rationale of other Fed officials who have called the 2% Fed funds rate too inflationary. Rosengren urged businesses and consumers to prepare for a period of time when credit wouldn't be available at an attractive price as banks refrain from lending while they repair their balance sheets. He also said that on a national scale the headwinds pushing against the economy seem to be stronger than those experiences in the early 1990s.
The latest Beige Book information suggests "we’re currently scraping along the bottom" of the credit crisis, but that it will be a prolonged period before the economy rebounds, says Doug Roberts, chief investment strategist at ChannelCapitalResearch.com, based in Shrewsbury, N.J.
The reason this appears to be so painful for a lot of people if that for many on Wall Street this is the first time they have experienced such a serious downturn, he says. "They're using the wrong frame of reference for an expected recovery," looking to the rapid rebounds in 1998 and 2001 as precedents instead of the drawn-out real estate slump of the late 1980s and early 1990s, he says.
"The Fed easing has actually helped us and attenuated the downside, but we’re still in a negative situation economically that will take some time to resolve," he predicts.
The closing of hedge fund manager Ospraie Management's flagship fund, which plummeted 27% in August on losses in energy, mining and natural resources stock holdings, is another blow to the commodities markets, as it's the one of the biggest closures ever of a commodities-focused hedge fund. The fund, which had an estimated $2.