Stocks plunge as markets process Bernanke’s remarks
NEW YORK -- The end is near, and Wall Street isn’t happy about it.
That’s the end of the Federal Reserve’s $85-billion-a-month bond buyback program, an unprecedented stimulus effort that everyone knew would have to end one day, when the economy got better. But now that the end is in sight, at least according to Fed Chairman Ben Bernanke, investors are worried that interest rates will rise, keeping consumers from buying cars, homes and the other goods that keeps the economy moving.
The Dow Jones industrial average was down 223 points, or 1.48%, about 90 minutes after the market opened, and the S&P; 500 fell 25.71 points, or 1.58%. The only positive market data came from 10-year bonds, which were up in early trading after the Fed signaled it would keep long-term interest rates low.
In a news conference and statement Wednesday, Fed Chairman Ben Bernanke said the economy was looking strong, and that the Fed could begin tapering its buyback program as early as this year, potentially ending it next year.
“The fundamentals look a little better to us,” Bernanke said, adding that the Fed could end its buyback program by 2014.
Investors had not expected so specific a timetable, nor so optimistic an outlook.
“The markets are a bit jittery and thinking that the end of tapering will lead to higher rates,” said Tanweer Akram, senior economist at ING Investment Management. “There’s no indication that the economic recovery is strong -- we’ve seen a lot of job creation, but many of those jobs are in the low wage sector.”
Economic data this week hasn’t given investors room for optimism. The euro zone is still mired in recession and factory output is slowing. The number of Americans filing new claims for unemployment benefits rose last week.
Investors’ nervousness spread across sectors of the market, driving down the price of gold by nearly 6% and oil by nearly 3%.
After Bernanke’s announcement, many analysts anticipated that the market sell-off would be temporary, and that equity investors would see the improving economy as a net positive in the long run. But that hasn’t happened yet. It’s possible investors are just surprised that the Fed’s announcement was so detailed. Usually, the Fed is hesitant to be too specific about its future policies.
“It’s finally some big news,” said Jack Ablin, chief investment officer for BMO Private Bank in Chicago. “These are usually the biggest non-event of the month.”
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