S&P500 Loses Year's Gains on Central Bank Talk

New York (Dec 3)  US stocks fell to session lows by the final hour of trading Thursday as divergence in monetary policy among the top central banks became clear.

Federal Reserve Chair Janet Yellen reiterated her optimism over the U.S. economy on Thursday, paving the way for a December rate hike. However, it's a different story in the eurozone as the European Central Bank committed to extending stimulus measures to boost a flagging economy.

The S&P 500 was down 1.4%, losing its gains for the year. The Dow Jones Industrial Average slid 1.4%, and the Nasdaq fell 1.7%.

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The economy has "recovered substantially since the Great Recession," Yellen said in prepared remarks to U.S. Congress on Thursday. "I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment and a rise in inflation to our 2% objective."

The odds of a December rate hike are currently at around 70%, indicating that investors are more confident than not that the first move higher in nearly a decade will happen before the end of the year. Some argue that the first rate hike is less important than the pace at which the Fed normalizes rates.

"The question is how aggressive will they be," Sharon Stark, managing director and fixed-income strategist at D.A. Davidson, told TheStreet. "At least one Fed President, Charles Evans (non-voter but an alternate in 2016) of Chicago, would like to see more signs of inflation before lifting the Fed funds rate, but most voting members are likely to raise rates, hence the market is positioning for lift off [in] December."

The official U.S. jobs report on Friday is a key release that could influence how the Fed moves at its mid-December meeting. The Fed is largely expected to move off of crises-level rates at its meeting, hiking rates for the first time in nearly a decade. The Federal Open Market Committee will meet on Dec. 15 with a decision due for the afternoon of Dec. 16.

"People are going to be looking for some kind of a signal from the data on whether the [Fed] will raise rates during its next meeting in December," Steve Blitz, ITG chief economist, told TheStreet. "It should be a number that adds to the general perception that the Fed will finally make its first rate hike [in nearly a decade]."

 ECB President Mario Draghi said Thursday that asset purchases of 60 billion euros will be extended past their September 2016 expiration by six months or "beyond" if necessary. Draghi said the program was being extended because it was working, not failing.

ECB staff projections for 2015 GDP also were bumped up to 1.5% from 1.4%. Next year's growth was left unchanged at 1.7%. The ECB cut its deposit rate to -0.3% from -0.2%, though left its key lending rate unchanged at 0.05%.

Analysts had expected the deposit rate to be cut to -0.4% and for asset repurchases to be increased above the current level of 60 billion euros. This ECB meeting had seen an increased level of anticipation with investors betting big on more of a commitment from ECB members to use the tools at their disposal to boost the economy.

"The ECB has comprehensively failed to live up to its own hype and markets and forecasters will take future communications from Mr. Draghi and colleagues with a corresponding bucket of salt," said Jonathan Loynes of Capital Economics, as reported by The Guardian.

The number of new claims for unemployment benefits in the U.S. rose 9,000 to 269,000 in the past week, according to the Labor Department. The reading was as expected.

Growth in the U.S. services sector slowed in November, falling to 55.9 from 59.1 a month earlier, according to the most recent reading from the Institute for Supply Management. Growth in new orders, business activity and employment fell over the month.

Factory orders grew at a slightly slower pace in October, according to the Commerce Department. Orders increased 1.5%, reversing a decline in September, though short estimates of 1.6% growth. Durable goods orders jumped 2.9% in the U.S.

Fourteen people have been confirmed dead in a mass shooting Wednesday in San Bernardino, Calif., with another 17 injured in the worst shooting in the United States in three years. Two suspects, a married couple, were killed in a resulting shootout. No motive has been determined for the shooting. Fears of terrorism have driven unpredictable trading in recent weeks after a lone gunman attacked a Planned Parenthood clinic in Colorado last week and following the mass terrorist attack in Paris earlier in November.

In earnings news, Aeropostale (ARO - Get Report) slid more than 25% despite reporting a narrower-than-expected quarterly loss. The teen retailer reported an adjusted loss of 31 cents a share, 3 cents narrower than forecast. Total sales slumped 20% with same-store sales dropping 10% from a year earlier.

Dollar General (DG - Get Report) rose 4% after reporting a 2.5% increase in same-store sales in its recent quarter. The dollar store chain said food products and seasonal sales drove the bulk of the increase. Dollar General also officially appointed John Garratt to the position of chief financial officer after acting as interim CFO since earlier this year.

Kroger (KR - Get Report) added nearly 3% despite a mixed quarter. The supermarket chain earned 43 cents a share, 4 cents above estimates, while revenue inched 0.4% higher to $25.08 billion, missing estimates by $140 million.

Sears (SHLD - Get Report) fell more than 7% after the embattled retailer reported a wider-than-expected net loss in its third quarter. The company lost $2.86 a share over the quarter, 2 cents more than estimates, while domestic comparable-store sales tumbled 8.6%.

Box (BOX) plummeted 11% despite a better-than-expected third quarter. The cloud-computing company reported a loss of 31 cents a share, in line with estimates, while sales jumped nearly 40% to $78.7 million, beating forecasts by $2 million.

Soiurce: TheStreet