Stock prices tumbled Thursday as investors struggled to come to grips with the end of the FOMC’s quantitative easing program.
The selling was sparked yesterday in the bond market as yields spiked sharply during Ben Bernanke’s press conference. From the bond trading pits the conflagration spread through Asia to Europe and finally back from whence it came in the U.S.
No asset class has been spared. Gold dropped 7% to 1,276; a level not seen since 2010. Industrial metals fell sharply in response to a stronger dollar and weak factory data from China overnight. Yields on the US 10year Treasury rose to as high as 2.47% before settling around 2.41%.
Related: Bond Rate Rally Crushes Equities
The S&P 500 has now snapped an uptrend in place since November of last year. Stocks are now nearly 5% off their highs of last month, though still more than 10% higher for 2013.
With the gains still there for the taking traders are loathe to step in front of a steep correction, preferring to lock in gains and hide in cash. Selling was indiscriminate with all 10 sectors of the S&P down over more than 1% for the day.
There were no radical changes in the text of the FOMC’s official statement and Bernanke’s press conference. The official policy is the same as it was yesterday and for much of the last four years. The Fed is committed to using all the tools at its disposal to stimulate economic growth.
The greatest fear for bulls is not a tapering of stimulus but a lack of perceived control. The FOMC is still spending $85 billion a month in an effort to keep rates low. Bonds aren’t responding to the stimulus. Bonds are pricing in the end of QE ahead of any rate tightening, evidence of economic growth or tangible inflation.
At least for the moment this is a run-of-the-mill correction. The sell-off is less than one month old and gains are still on the table. With earnings season coming in the next few weeks and the summertime blues setting in on Wall Street, discretion is the better part of valor for those looking to buy the dip.
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