Wall St extends losses after Fed taper

Stocks fell even deeper into the red this afternoon in New York after the FOMC announced a further $10-billion reduction to its monthly asset purchases.

Stock prices had already fallen sharply earlier in the session, erasing the gains from yesterday’s rebound, but were depressed even further by the Fed sticking to its guns and announcing a second successive taper in stimulus.

Fears that this may undermine emerging markets even more has sparked a fresh wave of selling on Wall Street and into the last hour of trading in New York, the Dow was down more than 200 points, or 1.31%, at 15,719. The S&P 500 declined 1.07% to 1773.4.

The Fed’s statement cited data showing heightened economic activity in recent quarters, while acknowledging that the labour market looks ‘mixed’ and inflation has been running below target. Based on the improvements the Fed sees, the committee decided to amend its asset purchases to a pace of $30 billion in mortgage-backed securities per month (down from $35 billion) and $35 billion per month in longer-term Treasuries (previously $40 billion).

The rest of the Fed’s message remains pretty much the same, stating that further reductions are likely should incoming data support the Fed’s outlook of ongoing improvement, although stressing that stimulus is not on a preset course. The statement once again reiterated that the Fed thinks ‘a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends.’

Despite the market’s reaction, I think there is encouragement to be taken from the Fed’s confidence in the recovery. That the Fed remains unruffled by short-term perturbations in the financial markets is surely a more reassuring message than if they had been swayed by the market.

Tomorrow we have jobless claims, fourth-quarter GDP data and pending home sales for December. Earnings include Dow components Exxon Mobil, 3M and Visa, as well as online giants Amazon and Google.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.