Wednesday, June 19, 2013
Financial markets shuddered Wednesday after the Federal Reserve said it could start scaling back its huge bond-buying program later this year and end it by the middle of 2014.
The Fed's $85 million in monthly bond purchases have been a boon for the U.S. economy, keeping interest rates near historic lows and lifting the stock market more than 140 percent over the past four years.
Now, it looks like the Fed is closer to ending that program as the U.S. economy improves.
The stock market drifted slightly lower for most of Wednesday ahead of a scheduled statement from the Fed and a press conference by Chairman Ben Bernanke. The Dow was down just 16 points shortly before the central bank released its policy statement at 2 p.m. Fed Chairman Ben Bernanke began speaking to reporters half an hour later. He said the purchases could end this year.
By 3 p.m., The Dow Jones industrial average was down as much as 181 points, then recouped some of its loss. With half an hour of trading left, the Dow was down 127 points, or 0.8 percent, at 15,189. Other indexes also fell.
Bond and currency investors reacted more sharply to the Fed's news than stock investors. Bond yields spiked higher as investors anticipated a slowdown in the Fed's purchases.
The yield on the 10-year Treasury note jumped to 2.31 percent, its highest in 20 months. The yield on the note started the day at 2.21 percent.
An index measuring the dollar against six other currencies surged 1 percent. The dollar rose against the Japanese yen, the euro and other currencies as traders anticipated higher U.S. interest rates.
The Standard & Poor's 500 index fell 14 points, or 0.8 percent, to 1,637. Telecommunications, utilities and consumer staples stocks fell the most. Those are stocks that investors favor when they seek steadier income.
The Fed has been buying bonds and keeping interest rates near zero to support an economy that is still struggling to grow faster following the Great Recession.
For weeks investors have been trying to figure out when the central bank will start to ease back on those purchases.
The Fed has said it will keep up the purchases until the outlook for the job market improves substantially. Speaking to reporters Wednesday, Bernanke said the bank could start scaling back its purchases later this year if the economy continues to improve. He said purchases could end by the middle of next year, and said the reductions would occur in "measured steps."
"The Fed right now is really trying to walk a tightrope," George Rusnak, head of fixed income at Wells Fargo Private Bank, said shortly after the Fed's statement was released. "They're preparing the market for tapering but at the same time they are trying to comfort the markets that it won't be too dramatic or too quick."
The Fed's policy of low interest rates coupled with bond-buying has been a major factor in driving stocks higher from their lows during the Great Recession. The S&P 500 has gained 15.7 percent this year and has advanced more than 140 percent since bottoming out in March 2009.
In commodities trading, the price of crude oil fell 20 cents, or 0.2 percent, to $98.24 a barrel. The price of gold rose $7.10, or 0.5 percent, to $1,374 an ounce.
In other U.S. stock trading, the Nasdaq composite fell 25 points, or 0.8 percent, to 3,456.
Among stocks making big moves:
-- Sprint Nextel fell 23 cents, or 3.1 percent, to $7.09 after satellite TV operator Dish Network said late Tuesday that it wouldn't submit a revised bid for the wireless carrier.
-- Adobe jumped $2.83, or 6.5 percent, to $46.19 after the software maker said that its Creative Cloud subscriptions continued to climb in its fiscal second quarter.
-- FedEx gained $2.49, or 2.5 percent, to $101.90 after the company posted earnings that beat the expectations of Wall Street analysts.
-- Men's Wearhouse fell 60 cents, or 1.6 percent, to $35.20 after the company dismissed its founder and executive chairman George Zimmer. The company also delayed its annual shareholders' meeting, which had been scheduled for Wednesday.