U.S. stocks dropped and bond yields surged on Wednesday, 19 March 2014 after Federal Reserve chairwoman Janet Yellen said that rate hikes could happen about six months after the Fed wraps up bond purchases. Earlier, a batch of mixed earnings did little to influence otherwise cautious sentiment.
The Dow Jones Industrial Average dropped 114.02 points, or 0.7%, to 16,222.17. The Nasdaq Composite shed 25.71 points, or 0.68%, to 4,307.60. The S&P 500 fell 11.48 points, or 0.6%, to 1,860.77.
Stocks, which were flat before the Fed statement, retreated afterwards. But the hard drop, which took the Dow down more than 200 points, came when a reporter asked Yellen how long the Fed would wait to start raising rates after it stops buying bonds in what's known as quantitative easing.
As expected, the Federal Open Market Committee announced another $10 billion taper, reducing the size of its monthly asset purchases to $55 billion ($25 billion in agency mortgage-backed securities and $30 billion in longer-term Treasuries). In addition, the Committee opted to drop the 6.5% unemployment threshold from its forward guidance while choosing to shift the focus to a 'wide range of information' on jobs as well as inflation.
At the press conference, Chairwoman Janet Yellen justified tapering the Fed's stimulus program while inflation is low by saying policy works on inflation only with very long lags. The economy is expected to be back to full employment by the end of 2016.
The U.S. dollar rallied, while U.S. Treasuries, the stock market declined.
In other news, there are rumors floating around Wednesday that another Chinese corporation is in default on an interest rate payment on its bonds. However, there has been no confirmation of such by China.
Today's economic data at Wall Street was limited to two data points. The fourth quarter current account deficit totaled $81.10 billion while the consensus expected the deficit to hit $87.60 billion. The third quarter deficit was revised to $96.40 billion from $94.80 billion. Separately, the weekly MBA Mortgage Index fell 1.2% to follow last week's decline of 2.1%.
Goldman Sachs cut its 2014 growth forecast for China to 7.3% from 7.6% because of disappointing data in the first two months of the year.
Gold for April delivery fell $17.70, or 1.3%, to settle at $1,341.30 an ounce on the Comex division of the New York Mercantile Exchange, after tallying a loss of 1.4%, or $20 an ounce, over the past two trading sessions. In electronic trading after the Fed announcement, gold futures traded at $1,333.50 an ounce. May silver settled down nearly 4 cents, or 0.2%, for the session at $20.83 an ounce. It was at $20.72 in electronic trading.
Crude oil futures climbed on Wednesday, 19 March 2014 to close back above $100 a barrel as traders assessed comments from the Federal Reserve on monetary policy and the U.S. economy, and weekly data showing a jump in U.S. crude supplies and a drop in oil-product inventories. Oil prices added to gains in the minutes ahead of the Nymex close as traders digested the Federal Reserve's decision to continue tapering its bond-buying stimulus program as expected.
Crude oil for April delivery advanced 67 cents, or 0.7%, to settle at $100.37 a barrel on the New York Mercantile Exchange.
The U.S. Energy Information Administration said early Wednesday that crude stockpiles rose 5.9 million barrels for the week ended 14 March. Market waslooking for a climb of 2.6 million barrels. The EIA also said gasoline supplies fell by 1.5 million barrels, while distillate stockpiles dropped 3.1 million barrels. Gasoline stockpiles were expected to fall by 1.6 million barrels, while distillates, which includes heating oil, were seen down 900,000 barrels.
Among stocks under focus, shares of Hewlett-Packard rose 3.5% as the tech giant is scheduled to host a shareholders meeting later Wednesday following the release of interim financial statements. Among other individual stocks, shares of First Solar jumped 21% to top the S&P 500 index after the company forecast strong earnings and said it is collaborating with GE to develop a more cost-effective photovoltaics power plant design. Shares in KB Home jumped 5.9% after the home maker swung to profit in its fiscal first quarter, beating analysts estimates.
Participation was on the light side with just over 650 million shares changing hands at the NYSE.
Indian ADRs ended mostly lower on Wednesday. In the banking space, ICICI Bank gained 0.9% at $42.37 and HDFC Bank fell 0.3% at $38.37. In the IT space, Infosys was down 1% at $53.84 and Wipro fell 0.2% at $13.06. In the other sectors, Tata Motors shed 0.6% at $32.6 and Dr Reddy's Laboratories shed 0.6% at $45.96.
Tomorrow, weekly initial claims will be released at 8:30 ET while February Existing Home Sales, February Leading Indicators, and the March Philadelphia Fed survey will cross the wires at 10:00 ET.