Undoubtedly the unsteady economic recovery is worrying investors and policymakers alike. Yesterday, at the end of a one-day policy meeting, the Federal Reserve officials appeared concerned about the state of the recovery and said they would take steps to reinvigorate the economy.
As expected, the central bank held the interest rates near historic low levels and said it would redirect proceeds from maturing mortgage-backed securities into government debt. While the mid-afternoon announcement helped stocks retrace some of the losses, the assessment that “the pace of the economic recovery is likely to be more modest in the near term than had been anticipated,” kept the advance in check. Fed’s announcement that it would purchase government debt sent treasuries higher. The yield on the 10-year note dropped to 2.75%.
A report from China showing its July imports increased at their slowest pace since November sent natural resource stocks sharply lower yesterday. DJIA component Alcoa AA shares dropped 2.7%; Rio Tinto RTP lost 2.2%; Freeport-McMoRan Copper FCX fell 2.0%.
The Dow industrials trimmed their triple-digit losses to close down 54.50 points, or 0.51%, at 10644.25. The tech-heavy Nasdaq Composite index dropped 29 points, or 1.2% to 2277.17 and the broader S&P500 index fell 7 points, or 0.6%, to 1121.06. On the New York Stock Exchange, declining stocks beat those that advanced in price by a three-to-one margin.
The technology sector saw two chipmakers’ shares downgraded. Analysts at Robert W Baird cut Intel INTC to “neutral” from “outperform,” citing the overall weakness in the tech sector. Intel shares dropped 4%. JP Morgan JPM maintained its neutral stance on Intel but cut its outlook on the chipmaker, citing dwindling personal computer orders. Barclays cut its rating on shares of Advanced Micro Devices AMD to "equal weight" from "overweight." AMD shares dropped 8%. NVIDIA NVDA closed down 4.1%.
This morning's premarket futures indicate sharp losses at the open, with markets still edgy about a struggling US recovery and shaky China demand growth prospects. Dow Jones industrial average futures are down 135 points, or 1.3%, to 10,483. Standard & Poor's 500 index futures are down 16 points, or 1.5%, to 1,103.50, while Nasdaq 100 index futures down 28 points, or 1.5%, to 1,868.50.
Risk aversion has driven the US dollar sharply higher against the euro as a safety play, the yen up against the dollar and US Treasuries higher, with the benchmark 10-year yield at its lowest since early March, slipping to 2.7523%.
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