Stocks slip after record day

Wall Street paused Thursday, as investors tried to figure out what to do next following the Federal Reserve's decision to keep its economic stimulus in place.

Stocks and government bond prices pulled back from their record-setting levels on Wednesday. Gold, historically a haven for nervous investors, had its biggest one-day jump since the onset of the financial crisis in September 2008.

Investors faced new questions Thursday. Was the Fed's vote to delay dialing back its stimulus a signal that the U.S. economy is weaker than they previously thought? Does the Fed have greater concerns about future economic growth than Wall Street?

The Fed was supposed to scale back its $85 billion in monthly bond purchases by $10 billion to $15 billion.

Instead, Chairman Ben Bernanke did nothing.

"He basically shelved (any cut backs) for the short and medium term," said Frank Davis, director of sales and trading at LEK Securities. Davis said the Fed would likely not vote to start pulling back until its mid-December policy meeting.

The decision was a surprise because Bernanke and other voting members of the Fed had telegraphed throughout the summer that the central bank was considering pulling back. The bond buying is designed to keep interest rates low with the goal of stimulating the economy by encouraging borrowing and lending.

Bernanke might have missed his window of opportunity, said Wayne Wilbanks, chief investment officer at Wilbanks, Smith, Thomas in Norfolk, Virginia, who manages about $2.4 billion in assets. Now the market is back to its mentality in May, when investors were trying to parse every possible data point from the Fed to figure out what it is planning to do.

"The Fed buttered the market up, it was a done deal," he said. "It was a huge policy mistake."

As part of its announcement, the Fed also cut its economic growth forecasts for this year and 2014. Bernanke warned that the upcoming debt ceiling and budget battles between the White House and Congress "may involve additional risks to financial markets and to the broader economy."

Wednesday's market rally highlighted a deeper concern: the belief among investors that this economy can grow only with the Fed's help, said Julius Ridgeway, an investment adviser at Medley Brown, a financial-advisory firm in Jackson, Mississippi.

"The market wants the economy to be healthy and on life support, and it can't have both over the long term," he said.

On Thursday, the Standard & Poor's 500 index lost three points, or 0.2 percent, to 1,722.34. The Dow Jones industrial average slipped 40 points, or 0.3 percent, to 15,636.55.

The Nasdaq composite index rose six points, or 0.2 percent, to 3,789.38.

Both the Dow and the S&P 500 hit record highs Wednesday. Investors also made big moves into gold, anticipating that the Fed's decision to pull back, also called "tapering" on Wall Street, may weaken the dollar or cause inflation.

Gold continued to climb Thursday, surging $61.70, or 4.7 percent, to $1,369.30 an ounce.

The yield on the 10-year Treasury note rose to 2.75 percent from 2.69 percent late Wednesday.

Despite Thursday's minor pull back, September has been great for the market. Stocks are on pace to have their best month in nearly two years.

However, Wilbanks and other investors believe the market cannot go much higher from here, particularly with earnings season coming in a few weeks and the looming political fights in Washington.

"We're being very careful about U.S. equities," he said.