Stocks tumble as Dow drops more than 200 points
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The doves were flying as the Federal Reserve stays put on interest rates. Federal Reserve Chair Janet Yellen cited the lack of inflation and global economic weakness as reasons they made no change in interest rate policy. Newslook
Stocks fell sharply in early trading Friday a day after the Federal Reserve opted not to hike interest rates, as investors focus on the Fed’s worries about recent turbulence in financial markets and the health of the global economy.
The Federal Reserve held off on raising rates, which are now pegged at 0% and haven’t been increased since mid-2006, due to the recent angst caused by China’s slowdown, wild price swings in global markets and heightened volatility around the world. But it appears the Fed’s concerns about these headwinds have given investors fresh pause and has refocused attention on these new emerging threats.
In early trading, the Dow Jones industrial average, which tumbled 65 points Thursday after being up by almost 200 points after the Fed decision, was down more than 200 point, or 1.3%. The Standard & Poor’s 500 stock index fell 1% and the Nasdaq composite index dropped 0.7%.
All ten of the S&P 500 sectors were lower with energy stocks leading the losses. Oil prices dropped more than 3% as U.S. benchmark crude fell $ 1.56 to $ 45.29 a barrel.
While most Wall Street pros still think the Fed will hike rates later this year (the Fed meets again in October and also has a December meeting), the focus will soon shift to the economy and business fundamentals, both at home and around the globe, says Russ Koesterich, chief global investment strategist at BlackRock.
Over the next month the market's "fixation is going to shift" away from Fed lift-off talk, Koesterich says, and toward figuring out how the U.S. and global economy are doing and what the outlook is for third-quarter corporate earnings.
"At the end of the day, fundamentals will be a bigger deal than whether the Fed's policy rate is 0% or a quarter-point higher," Koesterich says. "Is the economy growing? Are U.S. companies making their numbers? Investors (overly focused on the Fed) are fixated on the wrong thing."
A key takeaway from yesterday’s Fed decision is that even though they said the U.S. economy is probably strong enough to hike rates, and would not be upended by turbulence from abroad, the U.S. central bank still left rates unchanged to make sure global concerns don’t derail their still upbeat economic projections.
“The (Fed) decision to stay pat reveals a new monetary policy rule in place — one that amplifies the importance of international and financial market developments,” William Lee, an economist at Citigroup, told clients in a report.
Adds Lee: “The new (Fed) reaction function — one that assigns greater importance to global and international financial market developments — will require some time to assess and understand. It will likely be next year before we can dissipate significantly the uncertainties stemming from China and the related slowdown in emerging market economies.”
In today’s trading, it appears investors are heeding the Fed’s warnings and concerns about international developments.
Fresh fears about the state of the global economy fanned by Fed chair Janet Yellen in her press conference weighed on stocks today in Japan and Europe. The Nikkei 225 in Tokyo fell almost 2%. Shares of the London FTSE 100 was off 1.9%, Germany’s DAX was down 2.6% and the CAC 40 in Paris was 2.2% lower. Shares in Hong Kong and Shanghai, China, both rose, but gains were capped below 0.4%.
Citing global economic weakness and financial market turmoil, the Federal Reserve agreed Thursday to keep its benchmark interest rate near zero despite the rapidly improving U.S. labor market. Kaja Whitehouse for USA TODAY. USA TODAY
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