Euphoria Over the FED Fades, Stocks Fall for the Second Consecutive Day

On Wall Street, stock prices fell for the second consecutive day on Friday as the euphoria from Wednesday faded when the Fed decided to keep its accommodative monetary programs unchanged until the economic situation improves.

The Dow Jones weakened by 185 points, or 1.19 percent, to 15,451 points, while the S&P 500 slid 0.72 percent to 1,709 points, and the Nasdaq index fell 0.39 percent to 3,774 points.

The decline in stock prices for the second consecutive day is due, among other things, to conflicting views among officials of the U.S. central bank regarding stimulus measures.

Thus, James Bullard, president of the Fed branch in St. Louis, told Bloomberg yesterday that a reduction in accommodative monetary programs in December is possible, only to later say that due to low inflation, the Fed can be patient regarding the reduction of stimulus.

However, Esther George, president of the Fed in Kansas City, sharply criticized her colleagues’ decision on Wednesday not to reduce the amounts for bond purchases, warning that it caused confusion and could undermine the credibility of the central bank, indicating that monetary policy could soon be adjusted.

“The fact is that the Fed signaled a reduction in stimulus and the market adjusted to that. It could have taken the first step in that direction,” says Stephen Massocca, director at Wedbush Equity Management.

The decision by Fed leaders to keep the amounts for purchasing government and mortgage-backed securities, valued at $85 billion per month, unchanged sparked euphoria in the market on Wednesday, leading the Dow Jones and S&P 500 index to reach all-time highs.

However, this also shows that the Fed believes the economy is not strong enough on the path to recovery to grow without stimulus. As a result, the central bank has also lowered its growth forecasts for the economy this year and next.

Among the biggest losers yesterday was BlackBerry’s stock, which fell by more than 17 percent. The smartphone manufacturer announced that its business results for the second quarter would be significantly weaker than analysts expected and announced a restructuring that would leave 4,500 people without jobs.

Despite the decline for two consecutive days, the Dow Jones strengthened by 0.6 percent for the entire week, while the S&P 500 rose by 1.3 percent and the Nasdaq index by 1.4 percent.

European stock prices also fell yesterday. The London FTSE index weakened by 0.44 percent to 6,596 points, while the Frankfurt DAX fell by 0.21 percent to 8,675 points, and the Paris CAC by 0.06 percent to 4,203 points.