U.S. Stocks Decline; Dow Off Over 100 Points

U.S. stocks fell sharply on Wednesday, with the first triple-digit drop for the Dow since June, as investors worried about the recent spike in borrowing costs as well as the timing and pace of potential reductions in the Federal Reserve’s bond purchases.

“It looks like tapering is going to begin in September,” with the consensus view expecting the Fed to cut its $85 billion in monthly bond purchases to between $60 billion and $65 billion a month, said Rick Robinson, regional chief investment officer for Wells Fargo Private Bank.

So, instead of buying a trillion on an annualized basis, the Fed’s asset purchases would be trimmed to between $700 and $750 billion, said Robinson. “That’s not tightening by any stretch of the imagination; they are still growing their balance sheet,” he added.

Pointing to Tuesday’s 10 basis-point move in the 10-year Treasury yield  back above 2.70%, Robinson said that “there is the slow realization that over time, and it’s not going to happen tomorrow, that rates are going to normalize, so we’ll see the 10-year slowly go above 3%.”

On Wednesday, the 10-year yield , used in setting mortgage rates and other consumer loans, fell 2 basis points to 2.711%.

After a 134-point drop, the Dow Jones Industrial Average finished down 113.35 points, or 0.7%, at 15,337.66, with 22 of its 30 components in the red, led by home-improvement retailer Home Depot Inc. , down 2.5%.

Cisco Systems Inc.  erased losses, with the technology company and Dow component ending up 0.2% ahead of its quarterly results after the close.

The S&P 500 index lost 8.77 points, or 0.5%, to 1,685.39, with consumer discretionary the worst performing and technology faring the best among its 10 major sectors.

Apple Inc. rose 1.8%, extending a rally that took place Tuesday after investor Carl Icahn tweeted about holding a large position in the consumer technology company.

Shares of Macy’s Inc.  fell 4.5% after the department-store operator cut its full-year outlook on disappointing sales.The less-than-hoped results from Macy’s raise “some questions regarding the health of the American consumer in a sluggish economy,” Fred Dickson, chief investment strategist at Davidson Companies, wrote in emailed research.

Wall Street will be looking to Wal-Mart Stores Inc.  for “further confirmation on the state of the consumer when the largest U.S. retailer reports quarterly earnings tomorrow morning,” Dickson added.

Steinway Musical Instruments Inc.  climbed 7.9% to $41.29 a share after it agreed to be taken private for about $512 million, or $40 a share, by Paulson & Co.

The Nasdaq Composite dropped 15.17 points, or 0.4%, to 3,669.27.

For every share rising, just over two fell on the New York Stock Exchange, where 621 million shares traded. Composite volume neared 2.9 billion.

Benchmark indexes fell to session lows after St. Louis Federal Reserve President James Bullard expressed concern about low inflation readings, according to Dow Jones Newswires. Stocks then trimmed their decline as Bullard delivered a separate speech.

Ahead of Wednesday’s open, stock futures offered no perceptible reaction to a report from the Labor Department that had U.S. wholesale prices holding steady in July after a 0.8% gain in June. The core producer price index, which strips out energy and food, rose 0.1%, less than a 0.2% increase anticipated by analysts.

Gold futures rose $12.90, or 1%, to $1,333.40 an ounce and crude futures  added 2 cents to $106.85 a barrel.

The dollar  edged lower against the currencies of major U.S. trading partners, including the euro  and the yen .

Source : Marketwatch