US stocks fell yesterday as investors raised cash ahead of a critical speech from Fed chairman Ben Bernanke, hoping he will give them a clearer picture of the Fed’s plans for the struggling economy.
Several negatives contributed to the market’s weakness after three days of gains. Jitters over a sharp drop in German stocks and a report showing continued US job market weakness helped fuel the selling.
Stocks rose earlier this week, partly on expectation the soft US economy could trigger another round of monetary stimulus from the Federal Reserve, much like the one suggested by Bernanke at the same conference in Jackson Hole, Wyoming, a year ago.
“There is an assumption there is not going to be an announcement on monetary policy, but the market set up this week like that was the case,” said Art Hogan, managing director of Lazard Capital Markets in New York.
“There seems to be a bit of a dichotomy from what people are saying to what they are doing.”
Bernanke, who is scheduled to speak on Friday at 10am New York time (1400 GMT), is most likely to outline gradualist measures, which would disappoint those looking for dramatic action, such as a fresh round of asset purchases.
Stocks opened higher after Bank of America said Warren Buffett’s Berkshire Hathaway would be taking a $5bn (£3bn) stake in the bank, whose shares had fallen to two-year lows earlier this week.
“We had some upbeat emotion at the open with Warren Buffett’s investment in Bank of America but that fizzled very quickly when we looked across the pond and saw what was going on with German markets,” said Hogan.
The S&P 500 is still up 3.2 per cent so far this week, which could be the first positive one for the benchmark index in the past five.
The Dow Jones industrial average dropped 170.89 points, or 1.51 per cent, to 11,149.82. The Standard & Poor’s 500 Index fell 18.33 points, or 1.56 per cent, to 1,159.27. The Nasdaq Composite Index lost 48.06 points, or 1.95 per cent, to 2,419.63.
Volume has decreased from the frenzied first three weeks of August.
Major averages have stabilised, with 1,120 on the S&P 500 now viewed as a key support level, but it remains to be seen whether stocks can gather enough steam for an extended rally.
Bank of America gained 9.4 per cent to close at $7.65.