Dow Slumps 150 Amid Bernanke Statement

Stocks had sharp losses Wednesday and the Dow dropped nearly 150 points after the Federal Reserve said it will maintain its bond-buying program for the foreseeable future. The Fed gave no clear signs that it was close to scaling back the program, despite intense market speculation it could start drawing it to a close.

By: JeeYeon Park
Wednesday, 19 Jun 2013
CNBC

Stocks added to their sharp losses in volatile trading Wednesday, with the Dow dropping nearly 150 points, after the Federal Reserve said it will maintain its bond-buying program for the foreseeable future, though Chairman Ben Bernanke hinted that the FOMC plans to moderate purchases later this year.

The Federal Reserve said it would keep buying $85 billion in bonds per month and gave no clear sign that it was close to scaling back the program, despite intense market speculation it could soon start drawing it to a close.

Major averages had been trading sideways for most of the session as investors hesitated to jump in ahead of the Fed's announcement.

The Dow Jones Industrial Average fell nearly 150 points, after rallying more than 200 points over the last two sessions.

The S&P 500 and the Nasdaq also dropped. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dipped below 16.

All key S&P sectors turned lower, dragged by telecoms and industrials.

"Wall Street traders expected exactly what the Fed delivered today: slight forecast improvements while providing a crutch to continue with its aggressive monetary policy measures," said Todd Schoenberger, managing partner at LandColt Capital. "Interestingly, the language in the statement provides a mulligan on the recent 'tapering' comments. But Wall Street has already 'traded out' those statements and bulls will now focus on the comments about the likelihood of an increase in rates not occurring until 2015. Keeping rates low indicates a continued bull run in equities for the foreseeable future."

The policymakers also reiterated that the unemployment rate remained too high, supporting their decision to keep purchasing assets until the outlook for jobs improves, but offered a slightly rosier assessment of the balance of risks to the nation's growth.

Fourteen of the 19 Fed members said they did not think it would be appropriate to raise rates until some time in 2015.

Treasury prices fell after the announcement, with the benchmark 10-year yield down 20/32 in price to yield 2.26 percent.

Major averages have been volatile since Bernanke said last month that the Fed could begin to pare back its stimulus efforts if the U.S. economy gains momentum. Stocks rallied on Monday and Tuesday this week on the idea that Bernanke will not signal an abrupt end to the bond purchasing program.

President Barack Obama added to uncertainty about Fed policy on Tuesday, when he gave a press interview in which he suggested that Bernanke would leave at the end of his term in January. Obama said Bernanke had "already stayed a lot longer than he wanted or he was supposed to."

Fed Vice Chairman Janet Yellen is widely seen as the leading candidate to replace Bernanke, but there are other possibilities, including former Treasury Secretary Larry Summers. Yellen's views are viewed as similar to those of Bernanke.

In company news, FedEx reported a bigger-than-expected quarterly profit, thanks to its ground shipment business and amid lower jet fuel prices. But the company, considered a bellwether for economic activity, issued disappointing guidance.

Adobe surged after the software maker beat earnings expectations and said it expects the number of paid subscribers for Creative Cloud in the current quarter to top the 221,000 subscribers who signed up in the second quarter, increasing the total to 700,000.

Micron Technology, Red Hat and Jabil Circuit are expected to post earnings after the closing bell.

Men's Wearhouse declined after men's apparel retailer said it terminated CEO George Zimmer, providing no immediate reason for the ouster. In addition, the company postponed its annual shareholder meeting to renominate the existing slate of directors without Zimmer.

Following the termination, Zimmer told CNBC, "Over the past several months I have expressed my concerns to the Board about the direction the company is currently heading. Instead of fostering the kind of dialogue in the Boardroom that has in part contributed to our success, the Board has inappropriately chosen to silence my concerns through termination as an executive officer."

Dell traded flat after billionaire investor Carl Icahn promised the tech company's shareholders that the company would buy back up to $16 billion of stock if they join his move to stop Michael Dell and Silver Lake Partners's proposal to take the firm private.

Meanwhile, Dish Network Corp said it would not make a new offer to buy No. 3 Sprint Nextel, and would instead focus on its tender offer for Clearwire Corp.The decision may be good news for Japan's SoftBank, which is also trying to buy Sprint.

On the economic front, interest rates on home mortgages gained for the sixth-straight week to hit their highest level in over a year, according to the Mortgage Bankers Association, pushed higher by worries that the Fed could slow its stimulus program sooner than expected.

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