US Market Commentary (After Market Close): Stocks Surrender Gains in Late Sell Off

The latest FOMC policy statement and a weaker dollar helped bolster buying in stocks, but some late selling caused stocks to rollover in the final hour and close near the neutral line.

The major indices started the session in higher ground as participants responded to strong overseas gains and a downturn in the U.S. dollar. Gains among the major indices were both broad and strong.

Participants also digested in the early going the ADP Employment Change Report for October. The report indicated that last month private payrolls fell by 203,000, which is a bit worse than the 198,000 job losses that were widely expected. The ADP Report is a precursor to the official nonfarm payrolls report on Friday.

In other economic news, the ISM Manufacturing Index for October came in at 50.6. Though any reading above 50 denotes expansion, the October reading fell short of the 51.5 that had been forecast.

Reaction to the data was relatively muted as participants were largely focused on the latest FOMC policy statement, which was released midafternoon. The directive indicated that the FOMC will maintain the target range for the federal funds rate at 0.00% to 0.25% and it continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The statement was met with a volatile response by stocks, while the Dollar Index extended its losses. It settled with a 0.7% decline, its worst single-session percentage drop in two weeks.

As the dollar slid, both stocks and commodities showed strength. Gold futures prices had hit a new intraday record high around $1096.50 per ounce, but settled at $1087.30 per ounce with a fractional gain. However, in electronic trade, gold prices have ticked higher toward $1098 per ounce.

Meanwhile, oil futures prices settled 1.0% higher at $80.36 per barrel, helped along by the weaker greenback and an unexpected draw in weekly inventories. The gains by gold and oil helped drive the materials sector and energy sector more than 1% higher, respectively. Those gains vanished late in the session, though. The two sectors settled with losses of 0.1% each.

Late weakness came about as a broad-based selling effort took hold of stocks. Financials were at the center of the downturn, however. Financials were up as much as 1.6% in the early going, but steadily saw their gains erode before dropping sharply to a 1.5% loss late in trading. Multiline insurers (-3.8%) were among the worst performers in the sector.

However, managed care providers (+3.8%) fared well and helped the health care sector to a 1.3% gain, which was the best of any major sector. Strength in the sector came amid news from the Associated Press that the Senate's top Democrat signaled that Congress may fail to meet a year-end deadline for passing health care legislation. That could make for an uncertain outcome in 2010.

Earnings played somewhat of a supportive role in the early going, but had little lasting impact on this session's trade. Kraft (KFT 26.67, -0.87) was the only Dow component to report. It struggled as light revenue results overshadowed its better-than-expected earnings.

In other earnings news, broadcasters Time Warner (TWX 30.10, -0.06) and Comcast (CMCSA 14.06, -0.45) topped earnings expectations, but oil drillers and services outfits Baker Hughes (BHI 40.89, -2.54) and Transocean (RIG 84.41, -1.50) missed earnings estimates.