Day-Trading 12/12/12 "FOMC" More Inflation is Coming

U.S. stock gains dissipated on Wednesday as Federal Reserve Chairman Ben Bernanke warned the Fed does not have the ability to shield the economy from the fiscal cliff. "We cannot offset the full impact of the fiscal cliff — it's just too big," Bernanke said at an afternoon news conference. Stocks had jumped to session highs after the central bank said it would add further stimulus, with the Dow Jones Industrial Average rising as much as 81 points. The Dow industrials DJIA -0.02% declined 12.69 points at 13,236.29. Dow gainers included DuPont DD +1.40% , up 1.7% after the chemicals company said it would repurchase as much as $1 billion of its shares in 2013 and that 2012 profit would come in at the high end of its outlooks. The S&P 500 Index SPX +0.05% hung on higher by a point to 1,428.97. Aetna Inc.'s AET +3.24% shares rallied 3.9%, a day after the health insurer projected earnings growth of about 6% next year. The Nasdaq Composite Index COMP -0.28% fell 12 points, or 0.4%, to 3,013.18. Advancers remained just ahead of decliners on the New York Stock Exchange, where 462 million shares traded as of 3:30 p.m. Eastern. Composite volume neared 3 billion. The U.S. dollar DXY -0.19% and Treasury notes fell, with the yield on the 10-year note 10_YEAR +2.83% rising to 1.701%. Bernanke took questions after the U.S. central bank said it would add $45 billion in Treasury-note purchases to its $40 billion-a-month purchases of mortgage-backed bonds, and would keep official rates near zero so long as the jobless rate remains above 6.5% and inflation is not forecast to rise above 2.5%. Read: Fed sets jobless, inflation targets. Risky bets on global economy World's major central banks are embarking on an aggressive new phase of policy activism, a course fraught with economic and political risks. "I'm not surprised by the lack of a change in interest rates, and I'm not surprised by the continued buyback, but I am extremely surprised by the tying it [interest-rate policy] to the unemployment rate, as I don't know how you even put those two together," said Chip Cobb, portfolio manager at BMT Asset Management in Bryn Mawr, Pa. "Investors are trying to shake out what it really means, but I don't think the market understands it for one, and two, [the market] is still clearly focused on Jan. 1 and what that means," added Cobb of the automatic spending cuts and tax increases scheduled to start if budget negotiations in Washington do not succeed. • Boehner: 'Serious differences' • White House, GOP trade offers • Nutting: Republicans surrender • No giving on higher taxes: Obama • 6 tax issues to watch in 2013 • 401(k) tax breaks now at risk • Arends: Are investors crazy? • Delamaide: Progressive backlash A day after conferring by phone with President Barack Obama, House Speaker John Boehner on Wednesday said the president's revenue demand would not pass Congress. Later Wednesday, White House spokesman Jay Carney said the president continues to believe a deal to avert the fiscal cliff is possible by the end of the year. But Carney said Republican leaders have given "no indication" that they would agree to higher taxes for the wealthiest 2%. "You see a lot of gamesmanship, but it looks on the surface like we're going to see some increases in taxes," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co., who believes a budget deal will be reached by the end of the year. "Everything is so politicized now, it's hard to get your arms around what is real and not real, but the market is assuming nothing much is going to happen here." Obama has cut his demand for $1.6 trillion in additional revenue from taxing wealthy Americans to $1.4 trillion over a decade. The president's figure remains $600 billion above the Republican's stance. The CBOE Volatility Index VIX +2.38% fell 3% at 15.570. "Based on continued views of the VIX, it still looks like the market expects a deal, and you keep hearing mildly positive comments, if not from Washington, then certainly from a lot of the business leaders and money managers, who feel there is a chance of a mild resolution before the year is done," according to Cobb.