US stocks lower on central bank stimulus worries
NEW YORK – STOCKS dipped on Wall Street yesterday as traders anticipated a pullback in economic stimulus from the Federal Reserve.
It was the latest volatile turn in stock trading as investors try to figure out when and by how much the central bank will ease back on its US$85 billion a month in bond purchases.
The Dow Jones industrial average lost 76.49 points to 15,177.54, a drop of 0.5 per cent. It had been down as much as 153 points. The Dow had gained for the previous 20 Tuesdays in a row.
The Standard & Poor’s 500 index fell 9.04 points to close at 1,631.38, a drop of 0.6 per cent.
The Nasdaq composite fell 20.11 points to 3,445.26, down 0.6 per cent.
Esther George, president of the Kansas City branch of the Federal Reserve, said in comments meant for a speech that, in light of “improving economic conditions” and other reasons, “I support slowing the pace of asset purchases as an appropriate next step for monetary policy.”
“History suggests that waiting too long to acknowledge the economy’s progress and prepare markets for more normal policy settings carries no less risk than tightening too soon,” according to the prepared text. The speech was cancelled due to illness, but the comments were posted on the website of the Kansas City branch of the Fed.
The Fed’s next move will be to slow down its bond purchases, but nobody is sure when that will happen. As a result, traders have seized on comments from Fed officials and minutes from a recent meeting of Fed policymakers to send stock and bond prices swinging sharply over the past two weeks.
The next data point for investors is the Labour Department’s closely watched monthly employment survey due out Friday. Oddly enough, a weak report might be encouraging to stock investors since it would imply that the Fed would keep buying bonds to support the economy.
On Monday, traders interpreted an unexpected slowdown in US manufacturing last month as the latest sign that the Fed wasn’t close to winding down its stimulus programme.
“You gotta believe that people are getting ready for the end of the week,” said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
— AP