U.S. Stocks Sink, Yields Rise After Fed Move

U.S. stocks fell sharply and Treasury yields surged on Wednesday after Federal Reserve Chairman Ben Bernanke said the central bank may scale back its bond purchases this year, depending on the economic outlook.

Benchmark indexes initially cleared their losses after the Fed’s policy statement, then fell hard as Bernanke said the Federal Open Market Committee currently anticipates moderating the monthly pace of purchases later this year, so long as incoming data support the Fed’s forecast.

“The market was looking for some kind of commitment of no tapering, and he (Bernanke) is saying the labor market is improving,” said Joe Heider, principal at Rehmann Financial in Westlake, Ohio.

In its announcement, the Fed said it would continue to purchase $85 billion in bond purchases each month, but noted that the outlook for the economy and the labor market has improved since the fall. The FOMC reiterated that it was ready to hike or cut the pace of its asset buys, depending on the labor market and inflation.

Stocks, which were modestly lower before the decision, fell more after the statement and forecast. They lost further ground after Bernanke, at a press conference, said depending on the economic data, “the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year.”

Treasury prices fell, with the yield on the 10-year note used in setting mortgage rates and other consumer loans soaring to 2.33%, the highest level since March 2012.

With equities down and Treasury yields rising, “the market is suggesting that tapering could begin, even though Bernanke is saying no at this point,” said Heider.

“Markets love certainty; they don’t like uncertainty. When are they going to start backing off their purchases, and when will we have rising interest rates? We don’t know, so therefore we don’t like it,” added Heider.

Extending its streak of triple-digit moves into a seventh session, the Dow Jones Industrial Average lost 206.04 points, or 1.4%, at 15,112.19.

“The market is trying to position itself for a less-active Fed, and maybe a more normalized interest-rate environment,” said Randy Frederick, director of active trading and derivatives at Charles Schwab, of the market’s volatile state, in display ever since Bernanke indicated in testimony to Congress four weeks ago that the central bank might begin scaling back its bond purchases should the economy show sustainable improvement.

The S&P 500 index fell 22.88 points, or 1.4%, to 1,628.93. Telecommunication stocks paced declines among its 10 major sectors, with high dividend payers getting hit hardest as yields climbed.

Shares of FedEx Corp. rose 1.1% after the airfreight company reported a better-than-expected profit.

Adobe Systems Inc. climbed 5.6% a day after the design-software maker reported second-quarter profit that beat expectations.

Tesla Motors Inc. jumped 1.3%. The electric-car maker late Tuesday said it was recalling some of its 2013 Model S cars due to a mounting defect involving rear seats.

Sprint Nextel Corp. declined 4.4% after Dish Network Corp. opted to not hike its bid for the wireless carrier.

The Nasdaq Composite lost 38.98 points, or 1.1%, to 3,443.20.

For every stock rising, nearly six fell on the New York Stock Exchange, where 760 million shares traded.

Composite volume surpassed 3.5 billion.

The U.S. dollar gained against other currencies including the yen .

On the New York Mercantile Exchange, crude oil lost 20 cents to $98.24 a barrel and gold ended floor trade at $1,374, up $7.10 an ounce.

In its announcement, the Fed said it would continue to purchase $85 billion in bond purchases each month, but noted that the outlook for the economy and the labor market has improved since the fall. The FOMC reiterated that it was ready to hike or cut the pace of its asset buys, depending on the labor market and inflation.

Wall Street had risen sharply both Monday and Tuesday on thinking the Fed would not signal any immediate plan for scaling back on its $85 billion in monthly bond purchases.

Source : Marketwatch