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 purchases.
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.
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.
Yellen fielded questions from the press following the widely
expected Fed policy announcement in her first news conference as
the Fed chairwoman, succeeding Ben Bernanke.
Stocks, which were flat before the Fed statement, retreated
afterwards. 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.
Yellen 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 of
2015.
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.
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.
"It was a harsh reminder that QE wouldn't be here forever and it
would be done by the fall. Then when she noted that 'considerable
time' for keeping the fed funds rate in the current range would be
six months after QE ends, this opened the door to higher rates by
April. July was the consensus for the first rate hike," 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. See also:
Movers and shakers.
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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