Negative Reaction To Fed Statement Weighs On Wall Street - U.S. Commentary

(RTTNews) - Stocks saw significant weakness during trading on Wednesday, more than offsetting the rebound seen in the previous session. A negative reaction to the Federal Reserve's widely anticipated decision to continue scaling back stimulus weighed on the markets.

The major averages moved roughly sideways going into the close, stuck firmly in negative territory. The Dow tumbled 189.77 points or 1.2 percent to 15,738.79, the Nasdaq dropped 46.53 points or 1.1 percent to 4,051.43 and the S&P 500 slid 18.30 points or 1 percent to 1,774.20.

The weakness on the day extended a recent downward trend by the major averages, with the Dow and the S&P 500 falling to their lowest closing levels in over two months.

While stocks recovered from an early move to the downside, selling pressure re-emerged following the Federal Reserve's announcement of its latest monetary policy decision.

As was widely expected, the Fed announced plans to scale back its bond purchases by another $10 billion to $65 billion a month.

In the accompanying statement, the Fed noted that growth in economic activity picked up in recent quarters and said labor market indicators were mixed but on balance showed further improvement.

Much of the remainder of the statement was unchanged from December, with the Fed reiterating that it will likely be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5 percent.

Chris Low, chief economist at FTN Financial, said the pullback by stocks in response to the Fed's statement was likely because the central bank failed to mention the market unrest gripping traders the past several days.

"In the past three trading days, U.S. equities are down 3%, some emerging market currencies are off double digits and foreign central banks are fighting for their financial lives," Low said.

He added, "The Fact that it doesn't warrant even a passing mention in the Fed statement shows where all this falls on the Fed's list of priorities."

Earlier in the trading day, negative sentiment was generated by disappointing guidance from some big-name companies.

Shares of Yahoo (YHOO) plunged by 8.7 percent after the online media giant reported better than expected fourth quarter earnings but provided cautious guidance for the first quarter.

Boeing (BA) and AT&T (T) also came under pressure after reporting better than expected fourth quarter earnings but issuing disappointing full-year forecasts.

Sector News

Airline stocks turned in some of the market's worst performances on the day, dragging the NYSE Arca Airline Index down by 2.2 percent. The index offset the gain posted in the previous session, falling to its lowest intraday level in almost a month.

Within the airline sector, LATAM Airlines (LFL) and SkyWest (SKYW) posted notable losses, falling by 4.9 percent and 4.2 percent, respectively.

Significant weakness also emerged among retail stocks, as reflected by the 1.6 percent loss posted by the Dow Jones Retail Index. With the loss, the index ended the session at a three-month closing low.

Tobacco, defense, brokerage, and telecom stocks also came under pressure on the day, moving lower along with most of the other major sectors.

Meanwhile, gold stocks bucked the downtrend by the broader markets, moving higher along with the price of the precious metal. With gold for February delivery climbing $11.40 to $1,262.20 an ounce, the NYSE Arca Gold Bugs Index jumped by 2.7 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index surged up by 2.7 percent, while Hong Kong's Hang Seng Index advanced by 0.8 percent.

Meanwhile, the major European markets came under pressure on the day. While the U.K.'s FTSE 100 Index dipped by 0.4 percent, the French CAC 40 Index and the German DAX Index fell by 0.7 percent and 0.8 percent, respectively.

In the bond market, treasuries moved notably higher on the heels of the announcement from the Fed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dropped by 7.1 basis points to a two-month closing low of 2.675 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although reports on fourth quarter GDP, weekly jobless claims, and pending home sales are also likely to attract attention.

On the earnings front, Facebook (FB) and Qualcomm (QCOM) are releasing their quarterly results after the close of today's trading, while Exxon Mobil (XOM), 3M (MMM), UPS (UPS) and Visa (V) are among the companies due to report their results before the start of trading on Thursday.