Boosting the stock market isn’t one of the Fed’s jobs, but that hasn’t stopped investors from parsing every word of the statements made by the Fed and its chairman, Ben Bernanke.
The Fed’s mandate is to keep prices stable and promote low unemployment, not boost stocks. But a stock dive after Fed comments has happened before. On June 3, the stock market suffered a late-day dive when Bernanke spoke in public at a conference. Investors said they were looking for a hint of new plans to spur economic growth. When that didn’t come, all three major indexes sank.
After Bernanke outlined the plan for a second round of quantitative easing in August 2010, the S&P 500 index gained 28 percent over eight months. Investors pointed to that rebound as evidence that quantitative easing worked — and so did Bernanke. This sentiment led some people to believe that if stocks fall too far, the Fed would come to the rescue.
The Fed said in its statement Tuesday that it expects “a somewhat slower pace of recovery over coming quarters.” It also said that temporary factors, such as the high price of gasoline this spring and Japan’s March earthquake and tsunami, were only part of the reason for the weaker economy.
Economists now believe there is a greater chance of a U.S. recession because the economy grew much more slowly in the first half of 2011 than previously thought. The economy grew at its slowest pace in the first half of 2011 since the recession ended in June 2009. The manufacturing and services industries barely grew in July. The unemployment rate remains above 9 percent, despite the 154,000 jobs added in the private sector in July.
Economies across the globe are also struggling.
Worries are growing that Spain or Italy could become the next European country to be unable to repay its debt. High inflation in less-developed countries, which have been the world’s main economic engine through the recovery, is another concern. China’s inflation rose to a 37-month high in July.
Those economic concerns have pulled attention away from stronger corporate earnings this spring.
Dish Network Corp.’s reported Tuesday that its second-quarter net income rose 30 percent to $334.8 million on stronger revenue. Among the 441 companies in the S&P 500 index that have already reported their second-quarter earnings, profits are up 12 percent from a year ago.
The housing market, though, remains weak. Homebuilder Beazer Homes USA Inc. said its loss widened last quarter after it closed on fewer homes.
Consolidated trading volume was heavy, at 9.2 billion shares. Nearly 12 stocks rose for every one that fell on the New York Stock Exchange.
• AP Business Writers Matthew Craft, Sarah DiLorenzo and David K. Randall contributed to this report.
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