US stocks ended the week in the red on Friday as market speculation boiled over the US Federal Reserve’s stimulus program ahead of the Fed monetary policy meeting next week.
While no one expected the Fed to touch its ultra-low interest rates, concerns ran rife about a potential winding down of the Fed’s massive asset-buying program that has helped boost stock markets.
The markets closed lower every single day this week, except for Thursday’s sharp rally after an encouraging, but modest, rise in last month’s retail sales.
Friday’s sell-off came as investors booked profits and data on consumer sentiment and industrial production pointed to weakness in the economy.
The Dow Jones Industrial Average closed at 15,070.18, down 1.17 percent for the week.
The tech-rich NASDAQ Composite Index shed 1.32 percent at 3,423.56, while the Standard & Poor’s 500-stock index, a broad measure of the markets, lost 1.01 percent at 1,626.73.
Stocks closed lower for the third week in the past four weeks amid high volatility.
“If you don’t like the market, just wait a minute because whatever direction it is moving, it is going to change,” Lazard Capital Markets’ Art Hogan said.
Worries about the effectiveness of Japan’s big-bang stimulus measures and fresh evidence of China’s slowing economy also cast a cloud over the market.
Wall Street was cautious ahead of the Fed’s two-day policy board meeting that opens on Tuesday.
Investors will pore over the Federal Open Market Committee’s post-meeting statement on Wednesday for clues to the Fed’s thinking on the economy and the direction of monetary policy.
In addition, the central bank will release updated US economic forecasts and Fed Chairman Ben Bernanke will hold a news conference.
Just a few weeks ago, Bernanke, in testimony to the US Congress, suggested the Fed could begin winding down its US$85 billion-a-month bond purchases within months if the economy continued to show signs of improvement.
Debate over the tapering of quantitative easing (QE) has since roiled the markets, with every bit of economic news examined through the prism of a QE exit.
“Chairman Bernanke will likely do his utmost to lessen fears that rate increases are coming any time soon, even if tapering starts later this year. Hopefully that will provide some measure of calm to financial markets,” BMO Capital Markets said in a report.
However, the firm warned: “Brace for continued QE uncertainty in the wake of Wednesday’s Fed pronouncements.”
“We do not expect Mr. Bernanke to yet show confidence that the time to taper QE is near, but the most important aspect of his media Q&A will be whether he signals that an H2 [second-half] taper remains plausible, “ Deutsche Bank said.
Hugh Johnson, a portfolio manager, said that investors were becoming more realistic about the state of the US economy, where growth was still tepid four years after the Great Recession and despite the Fed’s extraordinary support.
“The consensus is now starting to take shape that the Fed is not going to begin to taper stimulus anytime soon,” he said.
The week featured a fair share of merger and acquisition activity. Google Inc said it was snapping up Israeli traffic and mapping application Waze for an undisclosed sum, reportedly more than US$1 billion.
Newspaper group Gannett Co boosted its effort to diversify by buying Belo Corp, a Dallas, Texas-based chain of 20 television stations, for US$1.5 billion.
Next week’s economic calendar has key readings on consumer prices and housing starts on Tuesday, with last month’s sales of existing homes due on Thursday.