Wall Street Pans Fed's Latest Move; Dow Plummets 284
FOX Business: The Power to Prosper
The markets took a steep fall on Wednesday amid worries the Federal Reserve is running out of ammunition to combat stubbornly high unemployment and anemic economic growth.
Today's Markets
The Dow Jones Industrial Average plunged 284 points, or 2.5%, to 11,125, the S&P 500 plummeted 35.3 points, or 2.9%, to 1,167 and the Nasdaq Composite shed 52.1 points, or 2%, to 2,538. The FOX 50 fell 20.5 points to 850.
The Federal Reserve said Wednesday it shift $400 billion short-term to long-term ones, lengthening the maturity of its balance sheet in its latest bid to stimulate the economy. The Fed also renewed its call to keep short-term interest rates at exception for until at least the middle of 2013.
The central bank has already exhausted its conventional tools, for example, short-term interest rates are already at essentially 0%, meaning it has had to make more unusual moves in a bid to spur employment and economic growth. The move is a more indirect stimulus, looking to push long-term interest rates lower.
"The Fed has few options at its disposal, so this move is not surprising," David Joy, chief market strategist at Ameriprise Financial wrote in a note to clients. "How much of an effect somewhat lower rates will make is questionable. At the very least, it can’t hurt."
The yield on the benchmark 10-year Treasury fell markedly after the release, recently hitting 1.88% from it previous close of 1.944%, and 1.937% where it had been sitting before the announcement.
More Banking Woes
Moody's sliced the long-term credit rating of Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) and Citigroup's (NYSE:C) short-term rating on Wednesday as it sees a lower probability of government support for the banking sector going forward. Shares of Bank of America, a Dow component, were the hardest hit by the news, but the entire financial sector, including other blue chips like JPMorgan Chase (NYSE:JPM) and Traveler's (NYSE:TRV) fell considerably too.
Heavy-machinery maker Caterpillar (NYSE:CAT) was on of the worst-performing blue chips by a significant margin in a sign of the weakness in the industrial sector on the day. Materials companies like Freeport-McMoRan Copper & Gold (NYSE:FCX) were also deep in the red.
The Nasdaq's losses, however, were tempered by technology stocks like Oracle (NASDAQ:ORCL) and Adobe (NASDAQ:ADBE), which posted strong performance on the heels of better-than-expected earnings reports.
Also on the technology front, a report by Bloomberg that Hewlett-Packard (NYSE:HPQ) is considering ousting its chief executive as the company struggles to find its way in a quickly-changing technology market sent its shares soaring.
The Troubled Housing Market
Existing home sales jumped 7.7% in August from July to a 5.03 million unit rate, topping the 1.4% gain economists had expected. The housing industry has struggled as individuals have still had trouble securing financing, uncertainty over whether prices have bottomed out, and high supply in many parts of the country.
While the number of home sales remains depressed, "the lack of further weakness does play into our general thesis that the worst of the housing market decline is certainly behind us and generally speaking, housing improvement, albeit it at a terribly slow pace, [lays] ahead," Daniel Greenhaus, chief global strategist at BTIG, wrote in a note to clients.
Continued Euro Jitters
On the other side of the Atlantic, minutes from the Bank of England released on Wednesday revealed policymakers believe the case for immediate resumption of so-called quantitative easing is strong in light of the economic malaise and ongoing sovereign debt crisis that has slammed Europe. There have been worries that English banks like Lloyds and Barclays (NYSE:BCS) may have exposure to debt of embattled euro zone countries like Greece.
The Greek situation, which has been a major focus on Wall Street for weeks, continues developing. Greek finance ministry officials said late Tuesday that progress had been made inspectors in securing the next roughly $11 billion tranche of much-needed rescue aid. European lenders have been pushing the country to take on deeper austerity measures to cut down on its enormous fiscal deficit, but the measures have been deeply unpopular among the public there. The Greek cabinet said it would cut pensions and put tens of thousands of public workers on notice late in Wednesday's session.
The worry for the financial markets has been that if Greece defaults, it could send shockwaves that may endanger other countries, like Italy, Europe's third-largest economy. Moreover, analysts have suggested, it could endanger the European banking system, which could even spillover into other global financial markets.
In currencies, the euro slid 0.1% against the U.S. dollar, while the greenback rose 0.31% against a basket of world currencies.
Energy markets were slightly higher following the Energy Department's weekly inventory report, but the fell with equity markets after the Fed statement. Oil inventories slipped 7.3 million barrels last week, compared to a forecast of a 700,000 barrel draw. Meanwhile, gasoline stocks climbed by 3.3 million barrels, a bigger build than the 1.2 million analysts anticipated.
Light, sweet crude dipped $1.00 cents, or 1.2%, to $85.92 a barrel. Wholesale RBOB gasoline ticked lower by 3 cents, or 1.3%, to $2.67 a gallon.
Gold fell $1.00, or 0.06%, to $1,808 a troy ounce.
Corporate News
Oracle (NASDAQ:ORCL) posted quarterly earnings of 48 cents a share after the bell on Tuesday, topping expectations of 46 cents.
Adobe (NASDAQ:ADBE) posted quarterly profits that beat Wall Street's expectations after the closing bell on Tuesday, and said it expects to have a stronger fourth quarter than analysts anticipated, which sent the shares jumping.
Microsoft (NASDAQ:MSFT) boosted its dividend by 25% to 20 cents a share late on Tuesday.
Foreign Markets
The English FTSE 100 dipped 2% to 5,288 and the German DAX sunk 1.4% to 5,288.
In Asia, the Japanese Nikkei 225 rose 0.23% to 8,741 and the Chinese Hang Seng fell 1% to 18,824.