Stocks Fall as Fed, China Jolt Global Markets

Tickers in this article: CRM DOV HPQ RL ^DJI ^GSPC ^IXIC

NEW YORK ( TheStreet) -- Major U.S. stock averages dropped Thursday after a choppy trading session, as investors worried the Federal Reserve would scale back stimulus and China could be headed for a slowdown.

A better-than-expected jobless claims report gave way to worries that the labor market was indeed improving and would encourage the Federal Reserve to taper its bond-buying program. Manufacturing data in China indicated an unexpected contraction in manufacturing activity in the country, culminating into the steepest decline for the Nikkei 225 in Japan since the aftermath of the tsunami and nuclear disaster in March 2011. The index closed down 7.3%.

"We had about a 3% intraday move to the downside from yesterday's high to today's low based upon what came out of the Fed yesterday," said Phil Orlando, chief equity market strategist at Federated Investors. Equities did retrace from their intraday lows by midday. "This market has gone vertically . . . and this is the most hated rally in the history of the stock market . . . and I expect down 3% some cash started to come into the market at the margin."

The S&P 500 closed down 0.29% to 1,650.51, easing off its intraday low. The Dow Jones Industrial Average was off 0.08% to 15,294.50. The Nasdaq slipped 0.11% to 3,459.42.

Hewlett-Packard's huge jump in share price and firm new-home sales and home price reports were just a few of the bright spots during an otherwise dim day.

Hewlett-Packard surged 17.1% to $24.86 after the PC and printer maker posted earnings on Wednesday that beat Wall Street expectations.

Fed Chairman Ben Bernanke's testimony before Congress Wednesday reaffirmed the importance of a sustained improvement in the U.S. labor market as a precondition to tapering asset purchases, and the jobless claims report Thursday appeared to be consistent with such an improvement.

"We believe that by September, the FOMC will have seen enough evidence of firming labor market conditions to modestly pull back on bond purchases," John Ryding and Conrad DeQuadros, economists at RDQ Economics in New York, wrote in a note.

Minutes Wednesday from the Federal Reserve's latest policy-making meeting showed that some members are open to scaling back monetary stimulus by June.

Nevertheless, Jordan Waxman, managing director and partner at HighTower HSW Advisors in New York, maintained that despite the intraday market pressures "the tenets of the bull market remain intact: strong earnings and corporate balance sheets, shrinking equity supply and little yield in fixed income alternatives and cash," he said. "We are looking for opportunities in cyclical names and industries, which are now historically very cheap to the consumer staples stocks we had been buying into the new year."

Dover tacked on 4.1% to $79.54 after the industrial conglomerate said it plans to spin off some of its communication technologies businesses into a publicly traded company. Upon the completion of the spinoff, the new company, Knowles Corp., will have $1.3 billion in annual revenue, the company estimated.