Wall Street slides as Fed minutes spark concern
By Edward Krudy | February 21, 2013 9:00 AM EST
Stocks fell the most in three months and a key gauge of market volatility spiked on Wednesday after minutes from the U.S. Federal Reserve's most recent meeting suggested the central bank may slow or stop buying bonds sooner than expected.
The minutes from the Fed's January meeting showed many officials voiced concern last month over potential costs of more asset purchases, suggesting that the program, known as QE, may slow before the pickup in hiring it was intended to deliver.
"What Wall Street wants to hear is an absolute sign that the Fed will continue with QE for the indefinite future. When it says we may end it faster, that just raises the uncertainty, and the market hates that," said Todd Schoenberger, managing partner at LandColt Capital in New York.
Wednesday's slide marked a rare return of nervousness to markets after their solid march higher this year. The CBOE Volatility index <.VIX>, or the VIX, a measure of investor fear, jumped 19.3 percent - the biggest daily gain for the VIX since November 2011.
In a sign of broad market weakness, the number of declining stocks outnumbered advancers by a ratio of more than 3 to 1 on both the New York Stock Exchange and the Nasdaq. The volume of traded shares hit its second-highest level this year.
Prominent stocks in a range of sectors booked sharp losses after disappointing earnings and outlooks, including homebuilder Toll Brothers
A slide in the commodity sector also weighed on stocks. Spot gold dropped to the lowest level since July, benchmark industrial metal copper fell to a one-month low, and U.S. crude oil futures shed more than $2 a barrel.
On Wall Street, the Dow Jones industrial average <.DJI> dropped 108.13 points, or 0.77 percent, to 13,927.54 at the close. The Standard & Poor's 500 Index <.SPX> fell 18.99 points, or 1.24 percent, to 1,511.95. The Nasdaq Composite Index <.IXIC> lost 49.19 points, or 1.53 percent, to end at 3,164.41.
For the benchmark S&P 500, the day's decline was the largest since November 14.
The Fed has used quantitative easing, or QE, since 2008 as it aims to stimulate the economy. The policy, which involves expanding the Fed's balance sheet to buy bonds, has been credited with pushing money into the stock market and it withdrawal is a wild card for markets.
Still, the S&P 500 has jumped about 6 percent so far this year. Many analysts have been expecting the market to ease after the Dow and the S&P 500 came close to all-time highs.
Energy companies' shares were among the weakest, hurt by disappointing results in the sector and a 2 percent drop in crude oil prices. The Energy Select Sector SPDR exchange-traded fund
Earlier in the day, unconfirmed rumors that a troubled hedge fund was selling assets added some downward pressure to the market. The rumors appeared to be unfounded.
"I heard the chatter about a hedge fund liquidating things today but how big, I don't know. Certainly, it sparks concern," said Michael James, senior trader at Wedbush Morgan in Los Angeles.
Housing shares also declined, pressured by weaker-than-expected results at Toll Brothers Inc
Toll Brothers' stock fell 9.1 percent to $33.56, but is up about 4 percent so far this year, building on a jump of nearly 60 percent in 2012. The Dow Jones U.S. Home Construction index <.DJUSHB> lost 6.7 percent.
"Valuations appear a bit high at these levels, and if I was in a name that had seen a huge run, I'd want to take some chips off the table," said Matt McCormick, money manager at Bahl & Gaynor in Cincinnati.
The Dow's losses were limited by Boeing Co
Shares of OfficeMax Inc
Rival Staples Inc
About 7.49 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, above the 6.48 billion daily average so far this year.
(Additional Reporting by Ryan Vlastelica; Editing by Jan Paschal)
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