Stocks showed a substantial downturn over the course of the trading day on Wednesday after seeing some strength in morning trading. Renewed worries about the Federal Reserve tapering its asset purchase program contributed to the sharp pullback by the markets.
The major averages climbed off their worst levels going into the close but still ended the day firmly negative. The Dow fell 80.41 points or 0.5 percent to 15,307.17, the Nasdaq tumbled 38.82 points or 1.1 percent to 3,463.30 and the S&P 500 slid 13.81 points or 0.8 percent to 1,655.35.
The sell-off on Wall Street came as traders digested Congressional testimony from Federal Reserve Chairman Ben Bernanke as well as the release of the minutes of the latest Federal Open Market Committee meeting.
In prepared remarks before the Joint Economic Committee of Congress, Bernanke seemed supportive of leaving monetary policy unchanged in the near future.
The Fed chief told the committee that a premature tightening of monetary policy carries a substantial risk of slowing or ending the economic recovery.
However, Bernanke later acknowledged that upbeat economic data could lead the Fed to scale back its asset purchase program in the next few meetings.
Adding to the worries about the central bank slowing the pace of its asset purchases, the minutes of the latest FOMC meeting said a number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting.
While the Fed indicated that any tapering of the asset purchase program will depend on evidence of sufficiently strong and sustained growth, traders seem to expect incoming data to show signs of continued economic improvement.
Chris Low, chief economist at FTN Financial, said, "Fed officials may be confused about whether QE [should be] upsized or downsized, but maybe the market expects the economy is getting better."
"If so, every time an official tells investors the next move depends on incoming information, it reinforces the market view that tapering will come soon," he added.
Meanwhile, the National Association of Realtors released a report showing a modest increase in existing home sales in the month of April.
NAR said existing home sales climbed 0.6 percent to a seasonally adjusted annual rate of 4.97 million in April from an upwardly revised 4.94 million in March. Economists had been expecting existing home sales to rise to an annual rate of 5.0 million.
While existing home sales reached their highest annual rate in over three years, NAR said sales remain below underlying demand because of limited inventory and tight credit.
Sector News
While most of the major sectors came under pressure on the day, commercial real estate stocks showed a substantial move to the downside. The Morgan Stanley REIT Index tumbled by 2.6 percent after reaching a five-year intraday high in early trading.
Networking stocks also saw significant weakness, dragging the NYSE Arca Networking Index down by 2.2 percent. Arris Group (ARRS) helped to lead the sector lower, dropping by 7.6 percent.
Considerable weakness also emerged among oil service stocks, which moved sharply lower along with the price of crude oil. With crude for July delivery tumbling $1.90 to $94.28 a barrel, the Philadelphia Oil Service Index fell by 2 percent.
Software, utilities, natural gas, and semiconductor stocks also showed notable moves to the downside on the day, reflecting the broad based weakness that emerged on Wall Street.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Wednesday. Japan's Nikkei 225 Index surged up by 1.6 percent, while Hong Kong's Hang Seng Index fell by 0.5 percent.
Meanwhile, the major European markets all moved to the upside over the course of the session. While the German DAX Index advanced by 0.7 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index rose by 0.5 percent and 0.4 percent, respectively.
In the bond market, treasuries moved sharply lower on the day amid worries about the Fed's asset purchase program. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.2 basis points to a two-month closing high of 2.026 percent.
Looking Ahead
Trading on Thursday is likely to be impacted by the release of reports on weekly jobless claims and new home sales, although upbeat data may be viewed negatively in light of the comments from the Fed.
On the earnings front, computer giant Hewlett-Packard (HPQ) is among the companies releasing their quarterly results after the close of today's trading.
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