U.S. stocks tumble on Fed taper fears

U.S. stocks take a major hit just one day after the Fed announced they may begin tapering their bond buying purchases later this year. Asian and European equities, gold and bonds all took a huge hit as well. The stock market's big advance since 2009 has been in part fueled by Fed policies that have punished other asset classes and encouraged investment via equities.

By Victor Reklaitis
June 20, 2013, 12:15 p.m. EDT
Market Watch

NEW YORK (MarketWatch) — U.S. stocks tumbled Thursday, along with Asian and European equities as well as gold and bonds after the Federal Reserve signaled its bond buying could be scaled back later this year.

Downbeat Chinese manufacturing data further weighed on sentiment.

After falling nearly 253 points, the Dow Jones Industrial Average DJIA -1.52% was lately down 198 points, or 1.3%, to 14,914, with all of its 30 components in negative territory.

Intel Corp. INTC -2.64% and Walt Disney Co. DIS -3.08% led the Dow lower, dropping more than 2%.

The S&P 500 index SPX -1.66% dropped 24 points, or 1.5%, to 1,605, with all 10 of its major industry groups trading lower.

The Nasdaq Composite COMP -1.66% lost 51 points, or 1.5%, to trade at 3,392.

Gold futures GCQ3 -6.19% dropped $80 to $1,294 an ounce on the New York Mercantile Exchange.

Federal Reserve Chairman Ben Bernanke said on Wednesday that the central bank may begin to scale back its $85-billion-a-month bond-buying program later this year if the economy continues to show strength.

The Fed’s stance led to sharp losses for U.S. stocks on Wednesday, while the 10-year Treasury yield 10_YEAR +3.26% soared. On Thursday, the yield climbed as high as 2.461%.

“If you’re that momentum investor looking for a quick trade, you didn’t get the information you were hoping for,” said Kim Forrest, senior equity analyst at Fort Pitt Capital Group. She said the market is “acting rationally” and selling off about as much as she expected given the Fed “really did disclose that it’s not going to be ‘QE Eternity.’” The central bank’s bond buying also has been called quantitative easing, or QE.

The stock market’s big advance since 2009 has in part been fueled by Fed policies that have punished other asset classes and encouraged investment via equities. But at the same time, the end of such policies also should be cause for some celebration among stock investors, according to some analysts.

Fort Pitt’s Forrest said that she’s a value investor looking for mis-priced yet attractive stocks to hold for at least three years, and therefore she and her colleagues aren’t selling now. “When the market swoons like this, it’s a buying opportunity,” she said. Investors should be looking for entry points, although not necessarily today, she said.

Other strategists are cautious.

“Near term, it is recommended investors wait for sentiment to turn extremely pessimistic before new buying,” said Bruce Bittles, chief investment strategist at R.W. Baird, in emailed comments.

The Dow is on pace for its eight straight triple-digit move, nearing a record set in 2008, when there were 10 swings of that magnitude. It’s also trading below its 50-day moving average, and it’s set to close below that key stock chart level for the first time since December. Plus, the index is on pace to finish below 15,000, a level that it last closed below on June 12.

The S&P 500 is holding just above 1,600. It briefly traded below that level on June 6, but it hasn’t closed below 1,600 since May 2. The benchmark index also has undercut its 50-day moving average.

“The next support level to observe is the June 6 low of 1,598,” said Jonathan Krinsky, chief technical analyst at Miller Tabak, in emailed comments.

In economic news Thursday, initial weekly jobless claims rose by 18,000 to a seasonally adjusted 354,000. Economists polled by MarketWatch expected claims to rise to 340,000.

Markit’s U.S. flash manufacturing purchasing managers’ index edged down to a 52.2 reading in June from 52.3 in May. Thursday’s economic reports also included better-than-anticipated figures for sales of existing homes and the Philadelphia Federal Reserve’s index of business conditions. Existing-home sales rose 4.2% in May to 5.2 million, above the 5 million expected by economists surveyed by MarketWatch.

The Philly Fed’s index rose to 12.5 in June, easily beating the negative 1.0 that economists anticipated. The Conference Board’s index of leading indicators edged up 0.1% in May to 95.2. That was slightly less than the 0.2% gain forecast by economists.

The post-Fed rout continued in global markets, with the Hang Seng Index HK:HSI -2.88% and the Shanghai Composite Index CN:SHCOMP -2.77% each tumbling close to 3% on Thursday. Fed worries were piled on top of a Chinese purchasing managers’ index that hit a nine-month low, according to preliminary HSBC data.

In Europe, stocks fell sharply, with Germany’s DAX DX:DAX -3.28% dropping 3.3% and the Stoxx Europe 600 index XX:SXXP -2.97% falling 3%.

Oil futures tumbled and the dollar has shot higher.

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