U.S. Stocks Fall Sharply As Fed Minutes Indicate Tapering This Year

Stocks saw considerable volatility following the release of the minutes of the latest Federal Reserve meeting on Wednesday before moving sharply lower going into the close. With the late-day sell-off, the major averages extended the notable drop seen in the previous session.

The major averages finished the session just off their worst levels of the day. The Dow plunged 382.59 points or 1.1 percent to 34,960.69, the Nasdaq slumped 130.27 points or 0.9 percent to 14,525.91 and the S&P 500 tumbled 47.81 points or 1.1 percent to 4,400.27.

The sell-off on Wall Street came as the Fed minutes revealed most officials at the central bank’s July monetary policy meeting believe it will be appropriate to begin tapering asset purchases this year.

The expectation of tapering asset purchases this year comes as most participants saw the “substantial further progress” criterion as satisfied with respect to the price stability goal and as close to being satisfied with respect to maximum employment.

However, the minutes of the July 27 to 28 meeting showed there was still some disagreement over the timing of tapering the asset purchases.

While some believe tapering could begin in the “coming months,” others felt a reduction in the pace of asset purchases would be more likely to become appropriate next year.

Participants favoring waiting until next year saw prevailing conditions in the labor market as not being close to meeting the “substantial further progress” standard or because of uncertainty about the degree of progress toward the price stability goal.

The Fed has repeatedly pledged to maintain its asset purchases at current levels until “substantial further progress” has been made toward both its maximum employment and price stability goals.

The minutes showed participants also expressed a range of views on the appropriate pace of tapering asset purchases once economic conditions satisfied the “substantial further progress” criterion.

Reflecting the recent surge in new cases of the delta variant of the coronavirus, several participants noted their views on the appropriate path of asset purchases could change if the economic effects of the new strains of the virus turn out to be notably worse than anticipated.

With the Fed pledging to provide advance notice before making changes to its asset purchase program, traders are likely to pay close attention to the statement following the next monetary policy meeting in September.

Sector News

Gold stocks moved sharply lower on the day, dragging the NYSE Arca Gold Bugs Index down by 2.8 percent to its lowest closing level in well over a year.

The sell-off by gold stocks came amid a modest decrease by the price of the precious metal, with gold for December delivery slipping $3.40 to $1,784.40 an ounce.

Considerable weakness also emerged among oil stocks, as reflected by the 2.1 percent slump by the NYSE Arca Oil Index. The index ended the session at six-month closing low.

Oil stocks moved lower along with the price of crude oil, which closed lower for the fifth straight session. Crude for September delivery slid $1.13 to $65.46 a barrel.

Natural gas, biotechnology, semiconductor and brokerage stocks also saw significant weakness, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan’s Nikkei 225 Index climbed by 0.6 percent, while China’s Shanghai Composite Index jumped by 1.1 percent.

Meanwhile, the major European markets turned in another mixed performance on the day. While the German DAX Index rose by 0.3 percent, the U.K.’s FTSE 100 Index edged down by 0.2 percent and the French CAC 40 Index slid by 0.7 percent.

In the bond market, treasuries closed modestly lower after ending the previous session nearly unchanged. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.5 basis points to 1.273 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed minutes, although traders are also likely to keep an eye on the weekly jobless claims report.

Source: Read Full Article