United States stocks caught their breath one day after the Federal Reserve said it will continue its open-ended economic stimulus efforts.
The Dow Jones Industrial Average declined 40.39 points, or 0.3 per cent, to finish Thursday at 15,636.55 points. The blue chips on Wednesday rocketed 147 points to close in record territory after the Fed said it would continue to purchase $85 billion in bonds each month, surprising many investors who expected the central bank to dial back the program.
The Standard & Poor's 500 index slipped 3.18 points, or 0.2 per cent, to 1,722.34 points, edging lower from its own record close.
The Nasdaq Composite Index added 5.74 points, or 0.2 per cent, to 3,789.38 points, ending at its highest level in 13 years.
Investors said that the pause on Thursday demonstrated how market participants were plotting their next moves rather than rushing to buy into a market that has seen the Dow soar 5.6 per cent so far in September, and 19 per cent for the year.
"The Fed's U-turn yesterday caught a lot of investors off guard," said Jeff Schwarte, US equities portfolio manager at Principal Global Investors in Des Moines, Iowa. "They've created some confusion, and injected a fair amount of uncertainty into future policy actions."
Utilities and consumer-staple stocks lagged as seven of the S&P 500's 10 sectors lost ground. These so-called defensive sectors, which tend to pay higher dividends, were the biggest beneficiaries of Wednesday's rally after the Fed's decision increased their appeal relative to bonds. Home builders like Lennar and D.R. Horton, which climbed more than 6 per cent Wednesday, also suffered sharp declines.
"These names had dramatic runs yesterday, and you're seeing profit-taking," said Yousef Abbasi, New York-based market strategist at brokerage JonesTrading Institutional Services.
More broadly, investors were left to ponder the meaning of stocks at all-time highs with a message from the Fed that the economy isn't yet strong enough to stand on its own.
"The market hasn't contemplated exactly why the Fed did not start," said Kristina Hooper, US investment strategist for Allianz Global Investors. "Part of it is concern about tightening financial conditions. They are also concerned about some weakening in economic conditions."
Fed Chairman Ben Bernanke said in a news conference Wednesday that while stimulus could be pared later this year, policy changes are tethered to the underlying economic data, and that the central bank didn't have a fixed schedule to end bond purchases.
European markets rallied. The Stoxx Europe 600 gained 0.6 per cent as investors cheered the Fed's decision. Investors also shrugged off data showing that UK retail sales for August fell unexpectedly. The UK's FTSE 100 index climbed one per cent, while Germany's DAX 30 advanced 0.7 per cent to a new all-time high.
Asian markets also gained, highlighted by strength in emerging markets. Indonesia surged 4.6 per cent, Thailand rallied 3.3 per cent and the Philippines advanced 2.8 per cent. Japan's Nikkei Stock Average rose 1.8 per cent.
US Treasury bonds pulled back Thursday as investors cashed out some chips after Wednesday saw the biggest rally since November 2011. The yield on the 10-year US Treasury note rose to 2.748 per cent, after tumbling to a five-week low on Wednesday, as prices fell. Bond prices rise when their yields fall.
With the Fed out of the way for now, investors said the focus turns to economic data. Initial claims for jobless benefits in the latest week rose to 309,000, from an upwardly revised 294,000 in the previous week, but below expectations of an increase to 330,000.
In other data, sales of previously owned homes rose unexpectedly in August to the highest level since 2007, versus expectations for a decline, according to the National Association of Realtors.
Crude-oil futures declined 1.5 per cent to settle at $106.39 a barrel. September gold futures rose 4.7 per cent to settle at $1,369.40 a troy ounce. The dollar lost some more ground against the euro but gained against the yen.
In corporate news, shares of J.P. Morgan Chase fell after regulators in the US and U.K. fined the bank $920 million for actions tied to its 2012 "London Whale" trading debacle.
Oracle rose slightly even after database software company reported late Wednesday fiscal first-quarter revenue that fell short of expectations and provided a downbeat earnings and sales growth outlook for the current quarter.
Rite Aid rallied after the drugstore chain reported a surprise fiscal second-quarter profit, helped by improving pharmacy sales, and raised its full-year outlook.