Benchmarks ended mostly lower on Wednesday after the Federal Reserve indicated it might increase key lending rates sooner than expected. The central bank also said the economic stimulus program may end this fall and the rates will then be raised six months later. These statements from Federal Reserve Chairwoman Janet Yellen dragged benchmarks to their first drop in three trading days.
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The Dow Jones Industrial Average (:DJI) dropped 0.7% to close Wednesday’s trading session at 16,222.17. The Standard & Poor (S&P 500) fell 0.6% to finish at 1,860.77. The tech-laden Nasdaq Composite Index too declined 0.6% to 4,307.60. The fear-gauge CBOE Volatility Index (:VIX) surged 4.1% to settle at 15.12. Total volume on the New York Stock Exchange was 3.2 billion shares. Advancing stocks were outnumbered by declining stocks on the NYSE. For 24% stocks that advanced, 74% declined.
The Federal Reserve Chairwoman Janet Yellen commented that interest rate hikes might happen in about six months after the end of the economic stimulus plan. The quantitative easing program is expected to end this fall.
Yellen said central bank will rely on a ‘wide range of information’ on jobs as well as inflation and not just the unemployment rate while deciding on raising interest rates. Market participants are now expecting the Fed to hike interest rates in the second half of 2015. In an attempt to boost the economy the Federal Funds rate has been near zero since 2008.
The Federal Open Market Committee decided in its policy meeting to ‘modestly’ reduce the pace of its bond purchase program. The Fed also said despite the harsh winter weather in the months of January and February, the economy had recuperated enough to withstand a reduction in bond purchases. The central bank agreed to trim purchase of its U.S. Treasuries and mortgage-backed securities by another $10 billion starting April. This will bring the bond-buyback program to $55 billion.
The day was devoid of any major economic data that could boost investors’ confidence. The U.S. Department of Commerce reported that fourth quarter current account deficit decreased to $81.1 billion while the consensus estimate expected the deficit to decline to $87 billion.
All the 10 sectors of the S&P 500 ended in the red. The Utilities Select Sector SPDR (XLU) led the decline as the sector dropped 1.6%. Top holdings from the Utilities sector such as Duke Energy Corporation (NYSE:DUK), Dominion Resources, Inc. (NYSE:D), NextEra Energy, Inc. (NYSE:NEE), Southern Company (NYSE:SO) and Exelon Corporation (NYSE:EXC) decreased 2.2%, 0.9%, 1.2%, 1.5% and 0.3%, respectively.
The Industrials sector followed Utilities. The Industrial Select Sector SPDR dropped 1%. Key stocks from the sector such as General Electric Company (NYSE:GE), United Technologies Corp. (NYSE:UTX), The Boeing Company (NYSE:BA), Union Pacific Corporation (NYSE:UNP) and 3M Company (NYSE:MMM) fell 1.4%, 0.6%, 1.5%, 1.4% and 1.1%, respectively.
U.S. stocks entered the negative territory on Wednesday after rising for two days in a row. In the last couple of days subdued tension between Russia and the West over Crimea, and encouraging domestic economic numbers had boosted markets. Increase in industrial production, modest improvement in general business conditions in New York State and a gain in homebuilders’ confidence were welcomed by the investors. The S&P 500 was able to move above its key technical level of 1850 and the tech-heavy Nasdaq Composite Index gained from the surge in technology stocks.
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