By Anora Mahmudova, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks dropped and bond yields
surged Wednesday after Federal Reserve chairwoman Janet Yellen said
that rate hikes could happen about six months after the Fed wraps
up bond buys.
Yellen fielded questions from the press following the Fed policy
announcement in her first news conference as the Fed chairwoman,
succeeding Ben Bernanke. The FOMC decided to trim the bond
purchases by another $10 billion this month and changed the way it
targets unemployment and inflation in deciding short-term interest
rates.
The Fed said it would now consider a "wide range" of factors
instead of relying mainly on the unemployment rate. The Fed
statement also stressed that the bank could keep short-term rates
below what is viewed as "normal" even if employment levels and
inflation hit its targets.
The S&P 500 (SPX) fell 11.48 points, or 0.6%, to 1,860.77,
most of the losses coming after the comment from Yellen during the
press conference. The Dow Jones Industrial Average (DJI) dropped
114.02 points, or 0.7%, to 16,222.17.
The Nasdaq Composite (RIXF) shed 25.71 points, or 0.68%, to
4,307.60.
Read the recap of our live stock-market coverage.
See also: Recap of live coverage of the Fed decision and the
Janet Yellen news conference.
Stocks, which were close to flat before the statement, retreated
after the statement. But the hard drop, which took the Dow down
more than 200 points, came when a reporter asked Yellen how long
the Fed would wait to start raising rates after it stops buying
bonds in what's known as quantitative easing.
She said the Fed's language "probably means something on the
order of around six months, that type of thing." The taper of the
Fed's bond purchases is expected to end in October or November,
putting the potential first rate hike on course for April or
May.
Yields on 10-year Treasurys surged, gold prices fell further and
the dollar spiked against the Japanese yen after the Fed
announcement and Yellen comments. Traders in fed funds futures
moved up their bets on rate hikes by two meetings, to April
2015.
"Things where down, but not a lot until Yellen dropped the bomb
that QE would be done by this fall. Of course, with five meetings
to go and $10-$15 billion taper per meeting, that brings us right
to October. Still, this comment caught many traders off guard and
provided some afternoon fireworks to the downside," said Ryan
Detrick, senior technical strategist at Schaeffer's Investment
Research.
Earlier, a batch of mixed earnings did little to influence
otherwise cautious sentiment.
Among individual stocks, shares of First Solar Inc. (FSLR)
jumped 21% to top the S&P 500 index after the company forecast
strong earnings and said it is collaborating with GE to develop a
more cost-effective photovoltaics power plant design.
Shares in KB Home (KBH) jumped 5.9% after the home maker swung
to profit in its fiscal first quarter, beating analysts
estimates.
Nu Skin Enterprises (NUS) shed 5.8% after it said in a 10-K
filing on Tuesday that it expects to be fined and potentially face
other sanctions in China following an investigation into its
business practices.
Shares of Hewlett-Packard Co. (HPQ) rose 3.5% as the tech giant
is scheduled to host a shareholders meeting later Wednesday
following the release of interim financial statements.
Cigna Corp. (CI) shares gained 3.3% after steep losses recently.
The stock is down over 8% year to date .
Pacific Sunwear of California Inc. (PSUN) shares rose 3.7% after
the retailer posted better-than-expected results for the fourth
quarter on Tuesday after the bell.
In overseas markets, Asia had a mixed day, with the Nikkei 225
giving up a more than 1.2% gain at one point to close up just 0.4%,
while Chinese stocks went nowhere. European markets slipped, while
the FTSE 100 index rose after the release of minutes from the
latest Bank of England Monetary Policy meeting and the latest jobs
data. (GBPUSD)
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