Investor Anxiety Causes Stocks to Nosedive
Maureen Farrell, NEW YORK, CNNMoney
U.S. stocks plunged Wednesday, as investors grew increasingly anxious about what the markets might look like without additional stimulus from the Federal Reserve.
Some investors had been hoping the Fed would move toward another round of quantitative easing, but those prospects seemed less likely following Tuesday’s release of minutes from last month’s meeting of the central bank.
“It certainly has taken people by surprise,” said Chris Beauchamp, an analyst at IG Markets in the United Kingdom. “Markets don’t like living in a world where they don’t have an active Fed to support them.”
Adding to the anxiety, payroll processing firm ADP reported a lower-than-expected increase in private-sector jobs for March ahead of the opening bell.
And once again, Europe became difficult for investors to ignore after Wednesday’s auctions for Spain’s debt failed to draw robust demand.
Wednesday’s sell-off was broad, with financial stocks leading the decline. Goldman Sachs, JPMorgan Chase and Bank of America all fell more than 2%.
Gold dropped more than 3%, hitting its lowest levels since early January. In a sign of increasing anxiety over the markets’ trajectory, the VIX also spiked roughly 8%. The index is still far below 30, though, the level that typically signals a high level of investor fear.
The Dow Jones industrial average tumbled 152 points, or 1.1%, with all 30 blue-chip components in the red.
The S&P 500 fell 16 points, or 1.1%. The Nasdaq slipped 55 points, or 1.8%.
“Today is definitely a pullback from recent runs, but investors are very hesitant,” said Joe Cogan, vice president of international equities at Topeka Capital. “Volumes have been up on days where things have sold off and light on the days when the market has rallied.”
U.S. stocks closed lower Tuesday, with momentum stalling after the Fed minutes were released.
Looking ahead, investors will be closely monitoring the Labor Department’s jobs report for March, which is due out Friday. However, U.S. markets will be closed in observance of Good Friday, and bond markets will close early.
Economy: Private-sector employers added 209,000 workers in March, according to payroll processing firm ADP. That was fewer than the 217,000 that economists had expected.
The ISM Services index for March increased to 56, less than expected. Still, any number above 50 signals growth.
World markets: The European Central Bank said Wednesday that it was holding its main interest rate steady at 1%. ECB chief Mario Draghi is currently holding a press conference.
European stocks were lower in midday trading. Britain’s FTSE 100 dropped 1.6%, the DAX in Germany fell 2.4%, and France’s CAC 40 shed 1.4%.
In Asia, Japan’s Nikkei tumbled 2.3%. Markets in Hong Kong and China were closed for the Tomb Sweeping holiday.
Companies: Yahoo announced 2,000 job cuts, as the Internet giant continues to restructure.
JPMorgan Chase said the Commodity Futures Trading Commission required the bank to pay a $20 million civil penalty to settle charges that it had unlawfully handled customer funds ahead of the Lehman Brothers bankruptcy.
Agricultural tech firm Monsanto raised its guidance and reported quarterly earnings that beat analyst expectations before Wednesday’s open.
General Electric shares fell, after rating agency Moody’s announced that it had downgraded the company’s debt due to risks associated with its finance subsidiary, GE Capital Corp.
Shares of online gaming company Zynga jumped following a New York Post report that the firm is in talks with casino operator Wynn Resorts over a possible online gambling game.
Shares of IBM and cruise ship operator Carnival Corp. both dropped on reports of analyst downgrades.
Burger King announced Tuesday that it planned to re-list on the New York Stock Exchange within 90 days, after a deal in which its owners sold 29% of the company to a U.K. investment fund.
Currencies and commodities: The dollar gained against the euro and the British pound but fell against the Japanese yen.
Oil for May delivery slipped $1.05 to $102.69 a barrel.
Gold futures for April delivery fell $46.40 to $1,625.60 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.24%.