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Stocks closed mixed on after taking a tumble and drastically reversing a strong morning performance, as the minutes from the Federal Reserve’s latest meeting on interest rates revived concerns about U.S. growth while giving little ammunition for those hoping for rate cuts. Worries about the economy and inflation deflated attempts at extending the 2006 rally.

Today, the Dow Jones industrial average closed up 11.37 or 0.09% to 12,474.52, the broader S&P 500 closed down 1.67 or 0.12% to 1,416.63, and the Nasdaq closed up 7.87 or 0.33% to 2,423.16.

Market breadth turned negative. On the New York Stock Exchange, losers topped winners by 9 to 7 on volume of 2.14 billion shares. On the Nasdaq, decliners edged advancers 17 to 12 as 2.13 billion shares changed hands.

The released minutes of the Fed policy meeting noted there was still considerable uncertainty about the pace of core inflation and the impact of the housing market on the economy. They also said employment should slow in the next quarter or so and that downside risks to growth have increased. While they agreed that inflation was the predominant concern, some felt the “subdued tone” of economic data meant risks to growth had increased. Essentially, they didn’t give any indications of when the Fed will cut rates, and only one member thought that slowing economic growth might soon warrant the Fed to change its stance. Investors are looking for evidence that growth is slowing enough to nip the edge off inflation, but not enough to send the economy into recession.

On the economic front, the ISM manufacturing index rose to 51.4 in December, topping forecasts for a rise to 50. The index was 49.5 in November, and a reading below 50 indicates contraction in the sector. Additionally, November construction spending fell 0.2%, versus forecasts for a drop of 0.6%. This possibly indicates a culmination of the slowdown in construction.

Stock of General Motors Corp. posted the steepest declines on the Dow, losing 4.1% after Banc of America downgraded the stock to sell from neutral. This is in response to the steep decline in sales as Toyota Motors has continued to outshine its American rivals.

Stock of Home Depot closed up $0.95 or 2% to $41.11, on news that CEO Robert Nardelli is leaving the company. Nardelli, who was criticized for the size of his pay package and for his management style, will leave with a $210 million severance package. He will be replaced by Vice Chairman Frank Blake.

U.S. light crude oil for February delivery dropped $2.73 to $58.32 a barrel on the New York Mercantile Exchange. This lead to a sigh of relief from investors as a big drop in oil can mean lower costs and higher earnings for many companies.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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