Stocks flatten after Fed delivers no surprises

A cheerful report on the U.S. economy, rising profits and no surprises from the Federal Reserve left the stock market nearly where it started Wednesday.

The news was nearly all good. The government said that the economy grew at a robust 4 percent annual rate this spring. Later in the day, the Federal Reserve did exactly what investors expected. It scaled back its support for the economy, while pledging to keep short-term interest rates low "for a considerable time" after it stops buying bonds.

Traders sold U.S. government bonds, pushing the 2-year Treasury note to 0.56 percent, the highest level this year. It's a clear sign bond traders think an improving economy will force the Fed to raise interest rates sooner rather than later. Meanwhile, stock investors were mainly sitting on their hands.

"Good news is getting to be bad news again," said Jack Ablin, chief investment officer at BMO Private Bank, referring to the lack of enthusiasm among investors in the stock market. "The GDP report is obviously good news, so why are stocks off? Because people are wondering when the party will come to an end."

The Standard & Poor's 500 index ended with a gain of 0.12 of a point at 1,970.07.

The Dow Jones industrial average slipped 31.75 points to close at 16,880.36. The Nasdaq composite rose 20.20 points to 4,462.90.

The Fed announced plans to make further cuts to its monthly bond purchases, a program launched after the financial crisis to encourage borrowing and spending. At the current pace of cutbacks, the Fed's bond purchases will end in October.

Most economists expect that the Fed could start raising rates next year as the economy improves.

A strong report on the economy is always good news for the stock market over the long haul, said Darrell Cronk, deputy chief investment officer for Wells Fargo Wealth Management. In the near term, though, investors are bound to weigh any good news against a possible interest-rate move from the Federal Reserve.

"I'd love to get back to where what matters most for the market is the economy, not what the latest read is on the Fed," Cronk said.

Investors were also following the parade of big companies turning in their second-quarter results. The reports out Wednesday presented a mixed picture. Sliding sales for Goodyear Tire & Rubber knocked its stock down 8 percent to $25.45.

Twitter's stronger revenue sent its stock up 20 percent Wednesday. The company reported a quarterly loss late Tuesday but its revenue more than doubled over the year, thanks to new advertising tools and a surge in traffic from soccer fans following the World Cup. Twitter's stock surged $7.71 to $46.30.

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Overall, earnings at U.S. companies have been better than many expected.

The economy's sudden contraction in the first quarter had resulted from several factors. A severe winter disrupted activity across industries and kept consumers away from shopping malls and auto dealerships. Consumer spending slowed.

Last quarter, consumer spending accelerated. Spending on durable goods such as autos surged. Analysts said that was an encouraging sign of consumers' growing willingness to buy high-cost items like cars.

"Better job growth, a rising stock market, falling gasoline prices - all those things are starting to resonate on Main Street," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Hoffman suggested that five straight months of job gains above 200,000 were buoying both consumer and business confidence.

"I think the economy has finally moved from the slow lane to the passing lane," Hoffman said.