By Joy Wiltermuth and Mark DeCambre
U.S. stock benchmarks finished lower for a second day Wednesday, with losses accelerating after the Federal Reserve’s July policy meeting minutes showed plans to reduce the central bank’s monetary support late this year.
The Fed minutes comes a day after the Dow Jones Industrial Average and S&P 500 index broke a streak of five straight record finishes.
What did major indexes end?
The Dow /zigman2/quotes/210598065/realtime DJIA +1.09% shed 382.59 points, or 1.1%, to finish at 34,960.69.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.75% fell 47.81 points, or 1.1%, closing at 4,400.26.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.50% fell 130.27 points, or 0.9%, ending at 14,525.91.
On Tuesday, the Dow fell 282.12 points, or 0.8%, while the S&P 500 declined 0.7%, retreating from record levels after data showed a larger-than-expected drop in July retail sales. The Nasdaq dropped 0.9%.
What drove the market?
Federal Reserve officials ramped up debate around the timing of an eventual pull back of the central bank’s easy monetary policies, according to minutes of the central bank’s July 27-28 policy meeting released Wednesday afternoon.
The minutes showed plans to consider reducing the central bank’s monthly asset purchases of $120 billion in Treasurys and mortgage-backed securities, likely by the end of the year, but they also suggested interest rates could still stay near zero for some time.
“I’ve been in the camp that they will tip their hat more clearly next week,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas, speaking of next week’s symposium on monetary policy in Jackson Hole, Wyoming, Jackson Hole.
Although, light options trading also suggests that “most people either don’t think the Fed is going to say a whole lot, or they don’t think the markets will react much,” during next week’s summit, Frederick told MarketWatch in a phone interview.
With stocks lower and gold prices higher after the Fed minutes, State Street Global Advisor chief investment strategist Michael Arone said the market is showing some hesitancy by investors about a potential premature pullback of monetary support, right as slumping consumer confidence and U.S. retail sales point to jitters about the pace of the economic recovery.
“I think the Fed could be reducing monetary policy support at a perhaps tenuous time for the economy recovery,” Arone said.
News reports earlier this week said policy makers were nearing an agreement to begin scaling back purchases by November, with The Wall Street Journal reporting some policy makers were looking to end purchases by mid-2022.
“Since the July FOMC meeting, the probability of a September announcement and an October, or November, start date to tapering those purchases has increased considerably, in our view, with the August payroll release coming out in early September likely to be the most important factor to tip the scales,” BlackRock’s Bob Miller, head of Americas fundamental fixed income, wrote in emailed comments.
St. Louis Fed President Bullard on Wednesday also said the U.S. economy won’t be derailed by the delta variant of the coronavirus, but pointed to a red-hot U.S. housing market that should be monitored carefully, during a noon interview with MarketWatch . Bullard is not a voting member of the Fed’s policymaking committee this year, but will be next year.
Boston Fed President Eric Rosengren, who will also be a voting member of the policy-setting committee next year, said he would support tapering the large-scale asset purchases this fall because rising inflation and debt loads could eventually threaten the recovery, in an interview with the Financial Times .
“The question is how will inflation be viewed at that time,” Kent Engelke, chief economic strategist at Capitol Securities, told MarketWatch. “I think inflation is gathering steam and today’s housing data show inflation is becoming systemic with the massive increase in rents.”