Stocks fall on FOMC minutes
Following a strong rebound Tuesday, the US stock market found itself on the defensive after the July FOMC meeting minutes expressed broad support for bond tapering. The FOMC minutes were this week’s most highly anticipated reading, prompting heavy movement prior to their release, as investors looked to better position themselves against potential Fed hawkishness.
The minutes revealed policymakers were “broadly comfortable” with Fed Chairman Ben Bernanke’s plan to start reducing central bank asset purchases this year. However, market participants weren’t given any precise clues as to when, and in what capacity, the Fed may begin unwinding its $85 billion monthly asset purchases. According to Erik Davidson of Wells Fargo, the Fed is uncertain about when to begin reigning in bond purchases, or whether the economy is ready for stimulus reduction.
While the exact date of a taper is unknown, the gradual unwinding of the summer means there are only three FOMC meetings left before the end of 2013—September, October and December. Sentiment on Wall Street is a taper will begin following the September 17-18 FOMC meetings.
The benchmark indices all fell under the weight of Fed speculation. The Standard and Poor’s 500 fell more than half a percent to 1,642.80. Over the past two weeks the S&P index has declined more than 2.6 percent. The Dow Jones Industrial Average fell 0.7 percent to 14,897.55 after failing to rally Tuesday. Over the past two weeks the Dow Jones has declined 3.32 percent on the heels of the bond tapering debate. The NASDAQ fell through 3,600 to close the New York day at 3,599.79, a loss of 0.38 percent.
The stocks will have a chance to rally Thursday when the Department of Labor releases weekly jobless claims. The figure is expected to show continued improvement in the US labour market. However, the weight of Fed speculation will likely spillover into this week’s remaining sessions.
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