The U.S. stock market fell by one percent for the second consecutive day today, following Federal Reserve Chairman Ben S. Bernanke’s announcement that the Fed will start tapering its economic stimulus that has been a pivotal factor in the U.S. economy’s recovery.
Yesterday, Mr. Bernanke said that the United States’ economic growth has been fast and strong enough for the Fed to start slowing down its “QE3” initiative, which involves the purchase of $85 billion in bonds per month. The slowdown should take effect later on in the year, though the actual end date of QE3 may take place in mid-2014 if the Fed’s economic forecasts are on the dot. Speaking vis-à-vis the stock market climate, Mr. Bernanke’s comments had led to selloffs in certain markets being supported by the economic initiative. The U.S. dollar, on the other hand, rose yesterday, and remains strong in today’s trading.
There are experts who believe that investors are overreacting to the recent Fed meeting and Mr. Bernanke’s game plan for QE3 going forward. “The market tends to overshoot and will continue to do so. We’ll probably see an overreaction to this,” said Lazard Capital Markets managing director Arthur Hogan. Additionally, investors remain worried about the state of other global markets, as recent statistics suggest a reduction in factory output in China and no end in sight to economic troubles in Euro zone countries.
The Dow Jones Industrial Average dropped by 1.4 percent to 14,900.89, a decrease of 211.3 points. Other markets were down as well – the Standard & Poor 500 also dropped 1.4 percent to 1,606.13, less 22.8 points from the previous day, while the NASDAQ Composite experienced a 1.23 percent downtick (42.18 points) to 3,401.02.