Stocks Have Another Taper Tantrum

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The stock market sank on Wednesday after the Federal Reserve announced that it would cut another $10 billion from its monthly bond purchases.

The stock market had another “taper tantrum” on Wednesday, as investors reacted negatively to the decision announced at the 2:00 conclusion of the FOMC monetary policy meeting. The Federal Reserve will cut another $10 billion from its monthly bond-buying program — with another $5 billion reduction in monthly purchases of mortgage-backed securities, as well as another $5 billion reduction in its purchases of Treasury securities. The Fed’s liquidity pump has now been slowed to $65 billion per month in bond-buying, compared with $85 billion per month during 2013.

Although the cutback had been anticipated, there was growing anticipation that the Fed might have been intimidated from further tapering after the chaos experienced by the emerging markets last Friday. Emerging market economies have benefited from the quantitative easing program because the “easy money” made available by the Fed encouraged more risky investments.

The Dow Jones Industrial Average (NYSEARCA:DIA) lost 189 points to finish Wednesday’s trading session at 15,738 for a 1.19 percent decline. The S&P 500 (NYSEARCA:SPY) sank 1.02 percent to close at 1,774. The Nasdaq 100 (NASDAQ:QQQ) fell 1.08 percent to finish at 3,467. The Russell 2000 (NYSEARCA:IWM) sank 1.39 percent to end the day at 1,122. 

In other major markets, oil (NYSEARCA:USO) advanced 0.12 percent to close at $34.73. On London’s ICE Futures Europe Exchange, March futures for Brent crude oil advanced 25 cents (0.23 percent) to $107.11/bbl. (NYSEARCA:BNO). April gold futures advanced $17.10 (1.37 percent) to $1,267.60 per ounce (NYSEARCA:GLD). The transportation sector went off the rails on Wednesday, as the Dow Jones Transportation Average dropped 1.20 percent to 7,190, falling back below its 50-day moving average of 7,271 (NYSEARCA:IYT).

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