MarketView for November 19

Summary

Stocks fell on Tuesday, with the Dow Jones Industrial Average and the S&P 500 indexes retreating further from milestone levels, led by a slide in Best Buy after a disappointing outlook.

Trading remained in a tight range prior to Federal Reserve Chairman Ben Bernanke’s talk in Washington, D.C., at 7 p.m. EST. Charles Evans, the president of the Chicago Federal Reserve Bank, said earlier on Tuesday that the central bank may need to wait until next year, possibly until March, before beginning to wind down its massive bond-purchase program.

Cautious forecasts from Best Buy and Campbell Soup gave investors a reason to sell. Best Buy ended the day down 11 percent to close at $38.78, while Campbell Soup was down 6.2 percent to close at $39.21.

Best Buy is cutting prices for the holiday season to thwart fierce competition from Wal-Mart and other discount and online rivals, a move that it warns will hurt margins for the current quarter. Campbell Soup cut its full-year profit forecast after a drop in demand for its soups and drinks resulted in first-quarter earnings that fell far short of Street expectations.

The Dow briefly rose above 16,000 but failed to close above that level for the second day. The S&P 500 retreated further from the 1,800 level it hit on Monday. Despite the two-day decline, the S&P 500 is still up about 25 percent for the year. The benchmark index is on track for its biggest yearly gain since 2003.

However, a recovery in the housing market helped Home Depot exceed profit and sales expectations for the third quarter, prompting the retailer to raise its fiscal-year outlook for the third time this year. The company’s shares ended the day up 0.9 percent to close at $80.38 after hitting a lifetime high of $82.25.

The S&P 500 has more stocks up so far this year than in almost any other year since 1980, according to Frost Investment Advisors. "221 stocks in the index are up more than 30 percent. In fact, it has been over 530 trading days now since the stock market has seen the 10 percent correction that many predicted over the last 529 or so days," Frost Investment said in a note to clients.

On Wednesday, minutes from the Fed's October meeting are scheduled to be released. At that meeting, the Fed decided to stick with its bond-buying program. Investors have been bracing for a pullback from the stimulus program since the summer.

Tesla rose 3.7 percent to $126.09 in a volatile session. Regulators launched an investigation into the luxury electric sports car maker's Model S sedan after three car fires in six weeks.

About 5.8 billion shares changed hands on the three major equity exchanges, a number that was slightly below the five-day average closing volume of about 6.1 billion shares, according to BATS exchange data.

Fed Is Committed Says Bernanke

Federal Reserve Chairman Ben Bernanke said on Tuesday the Fed will maintain ultra-easy monetary policy for as long as needed and will only begin to taper bond buying once it is assured that labor market improvements would continue.

In a speech to the National Economists Club that echoed dovish comments by his nominated successor, Janet Yellen, Bernanke also said that while the economy had made significant progress, it was still far from where officials wanted it to be.

"The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed," he said in prepared remarks, referring to the policy-setting Federal Open Market Committee.

"I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery," he said.

The Fed decided in October to maintain asset purchases at an $85 billion monthly pace. Bernanke, in remarks likely to reinforce expectations the Fed will not taper until next year, said officials want evidence of durable job growth before scaling back buying.

"The FOMC still expects that labor market conditions will continue to improve and that inflation will move toward the 2 percent objective over the medium term. If these views are supported by incoming information, the FOMC will likely begin to moderate the pace of purchases," Bernanke said.

Fed officials meet next on December 17-18, although most economists don't think they will begin to scale back the bond buying until their meeting in either January or March.

The Fed stunned markets in September when it decided to keep buying bonds, after Bernanke said back in June it expected to start scaling the program back later this year. Those expectations were allowed to harden over the summer.

Bernanke noted this decision caused market volatility -- which many economists blame on poor communication by Bernanke himself -- but he said market expectations for future rate hikes were now better aligned with the Fed's own forward guidance on future rate hikes.

Fed fund interest rate futures currently indicate a higher than 50 percent chance of a first rate hike in September 2015, and the move is not fully priced in until November, 2015.

Before September's Fed announcement, markets had pulled expectations for the first rate hike forward into 2014.

"Although the FOMC's decision came as a surprise to some market participants, it appears to have strengthened the credibility of the Committee's forward rate guidance," Bernanke said. "Following the decision, longer-term rates fell and expectations of short-term rates derived from financial market prices showed, and continue to show, a pattern more consistent with the guidance."