Fed’s plan to taper stimulus hurts Wall St

US stocks fell more than 1 per cent yesterday after Federal Reserve chairman Ben Bernanke said the central bank would start to reduce its stimulus measures later this year if the economy is strong enough.

Equities have been closely tethered to ultra-loose monetary policy, which has been key to the S&P’s climb of more than 14 per cent so far this year. Benchmark 10-year US bond yields jumped to a 15-month high on expectations the Fed will reduce its bond buying.

Bernanke said at a news conference the Fed may reduce its bond-buying program with the goal of ending it in mid-2014. While investors have expected the Fed to pull back on its stimulus, Bernanke's comments gave the most explicit timeline to markets, causing stocks to tumble on heavy volume. In the days leading up to the Fed announcement, stocks had swung between modest losses and breakeven.

“I was surprised he addressed the issue of tapering, since last time he did we saw a fairly significant market hiccup,” said Randy Bateman, chief investment officer of Huntington Asset Management.

The Dow Jones industrial average was down 205.96 points, or 1.34 per cent, at 15,112.27. The Standard & Poor’s 500 Index was down 22.89 points, or 1.39 per cent, at 1,628.92. The Nasdaq Composite Index was down 38.98 points, or 1.12 per cent, at 3,443.20.
About 6.65bn shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, above the daily average so far this year of about 6.36bn shares.