Investors Wavered by Fed’s Minutes

On Thursday, stock prices on Wall Street slightly declined after two days of strong growth, as investors were unsettled by concerns from leaders of the U.S. central bank, the Fed, regarding the very loose monetary policy.

The Dow Jones index weakened by 0.16 percent, to 13,391 points, while the S&P 500 fell by 0.21 percent, to 1,459 points, and the Nasdaq index by 0.38 percent, to 3,100 points.

Thanks to an agreement between Republicans and Democrats on reducing the budget deficit, the S&P 500 index surged by a strong 4.3 percent in the previous two trading days, thus a consolidation of stock prices was expected.

Euphoria has waned also because Democrats and Republicans face further tough negotiations in the coming months regarding the reduction of budget expenditures and the allowable level of government borrowing.

Investors were also unsettled by the minutes from the last meeting of the U.S. central bank, which showed that several Fed leaders believe that asset purchase programs should be reduced or completely abolished by the end of 2013, while others advocate for the continuation of such policies.

The Fed has been conducting a very accommodative monetary policy for years. In addition to cutting key interest rates to record low levels, it also employs programs for purchasing government bonds, as well as mortgage-backed securities, to reduce long-term interest rates and thus stimulate lending and economic growth.

Thanks in part to this, the S&P 500 index rose by 13.4 percent last year. If the Fed were to abolish these liquidity-boosting programs in financial markets, the appetite of investors for riskier investments, such as stocks, would decrease.

In most sectors, stock prices fell yesterday, while one of the winners was the retail sector, as several retail chains reported better-than-expected sales during the holiday shopping season. As a result, the S&P retail sector index strengthened by 0.4 percent.

European markets also traded cautiously yesterday. The London FTSE index strengthened by 0.33 percent, to 6,047 points, while the Frankfurt DAX weakened by 0.29 percent, to 7,756 points, and the Paris CAC by 0.34 percent, to 3,721 points.