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article imageStock markets decline sharply as bond-buying spree may slow down

By Ken Hanly     Jun 20, 2013 in Business
New York - Ben Bernanke's announcement Wednesday (June 19) that the central banks could begin to taper off purchases this year if the economy is strong enough helped send US stock indexes into a tail spin extending a decline from yesterday.
The Dow Jones Index fell more than 2 percentage points on Thursday (June 20). The S&P 500 experienced its worst decline since November 11, 2011. Trading was heaviest so far this year. More than 94 per cent of New York Stock Exchange stocks were lower on the day.
The total decline of the Dow Jones Index was 353.87 a whopping 2.34 per cent. The index ended at 14,758.32 well below the 15,000 mark. The NASDAQ Index was almost as bad, dropping 2.28 per cent and 78.57 points. The US Central Bank has been buying $85 billion in bonds each month fueling stock market gains and sending them to earlier record highs. On market dips investors would buy back into the market preventing significant declines. Analysts are not sure that pattern will continue.
David Joy, market strategist at Ameriprise Financial said:"There's money leaving the market from people who were convinced that the rally has been mostly attributable to the Fed, and the rise on the 10-year yield is a concern since it happened so quickly. It's too early to say whether this represents a buying opportunity or if the weakness will continue."
Joy thought that perhaps the move downward was not justified: "Remember that tapering would be a vote of confidence in the market, which would be good news. And for the moment, the Fed is still very accommodative, with things remaining data-dependent. Those are signs that declines of this magnitude may not be justified."
George Rusnak, who is national managing director of fixed-income strategies at Wells Fargo Bank in Philadelphia, said:
“The Fed’s walking a tightrope here. They’re balancing preparing the markets that tapering is going to begin, but at the same time, comforting them that it’s not going to be too dramatic and too quick to be disruptive. It’s a fine line.”
The S&P index closed below its 50 day moving average a key technical measure that could lead to selling pressure. It also closed under 1600 for the first time since May 2 wiping out recent gains.
Other factors may have contributed to the decline. China has not been injecting funds into the market even though the Chinese economy is slowing. This sent Chinese stocks down by 2.8 per cent.
More about Ben bernanke, Dow Jones Index, US stock markets
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