Shares dip on lack of QE3 suggestion

US stocks dropped yesterday after the Federal Reserve acknowledged the sluggish pace of the US economic recovery without hinting at further plans for stimulus.

The Fed said the recovery was proceeding more slowly than it had expected. In his news conference, Fed chairman Ben Bernanke offered nothing to motivate investors to buy equities.

Without new information from the Fed, investors were left to take profits after a four-day rally that lifted stocks from three-month lows. Some analysts see range-bound trading ahead, with 1,295 among the S&P 500’s first targets of resistance.

“The comments offered a pretty strong indication that the economy is not growing as fast as a lot of people hoped it would,” said Bryant Evans, investment adviser and portfolio manager of Cozad Asset Management, in Champaign, Illinois.

“For three months, we could go sideways or down because it could take some time before the economy can build on what we have here.”

Expectations about a second round of Fed stimulus last fall helped ignite an extended rally in stocks. There is some hope the Fed will conduct another round of asset buying, but most economists see it as unlikely at this time.

The Dow Jones industrial average slid 80.34 points, or 0.66 per cent, to 12,109.67 at the close. The Standard & Poor’s 500 Index dropped 8.38 points, or 0.65 per cent, to 1,287.14.

The Nasdaq Composite Index tumbled 18.07 points, or 0.67 per cent, to 2,669.19.

The S&P 500 is down 5.6 per cent since its early May highs.

“The market was up four days in a row coming into today, the rally has been OK, but it hasn’t shown enough strength to break the downside momentum the market has had since May,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.

Another indicator of pessimism: Net short positions by hedge funds on the S&P 500 have risen recently, according to Societe Generale cross-asset research.

Weighing on tech, Adobe Systems Inc shares slumped 6.3 per cent to $30.01 a day after the software maker reported a 54 per cent jump in quarterly profit, but warned of weakness in European demand.

The Fed said it will maintain interest rates at exceptionally low levels for an extended period.