Fed Speaks, Dow Crumbles

Well, the moment of truth finally came for investors today, but they didn't get the news they wanted. After several volatile sessions, which saw the Dow Jones Industrial Average (DJINDICES: ^DJI  ) fluctuate by  more than 100 points for several consecutive sessions on little more than hunches about Fed action, the blue chips hovered at breakeven for most of today but tumbled after Fed Chairman Ben Bernanke spoke, finishing down 206 points, or 1.4%.

In official remarks this afternoon, Bernanke said the Fed planned to begin reducing the $85 billion monthly stimulus program and fully taper it by the middle of next year if the job market continues to improve according to the Fed's projections, which call for the bond buying to end once the unemployment rate hits 7%. The rate is currently at 7.6%. The central bank also sounded optimistic about the recovery in general, saying there were fewer risks than there were a year ago and that the labor market has continued to improve.

Today's news will hopefully put an end to the market's obsession with the stimulus taper as the program should come to an end as the economy improves. The Fed's current policy is not without consequence, hurting savings rates and weakening the dollar, and an economy that no longer needs the monetary crutch shouldn't have it.

Telecom stocks fell harder than the rest of the Dow 30 as Verizon (NYSE: VZ  ) and AT&T (NYSE: T  ) finished down 2.9% and 2.5%, respectively. There was no specific news out on either company, but the two stocks are the Dow's biggest dividend payers, and the Fed's announcement pushed the 10-year Treasury yield up 6% to 2.31%, making dividend stocks less appealing. Bond yields rose as investors sold on the news that the Fed may cut its treasury purchases, but that makes the fixed income stream more competitive with high dividend yields. The two telecoms may also be reacting to DISH's decision to back away from its pursuit of Sprint, the nation's No. 3 wireless carrier, paving the way for Softbank to purchase 78% of the company, which will give it much-needed capital.

Boeing (NYSE: BA  ) shares were also down more than most today, falling 1.8%. A United 787 Dreamliner jet ran into oil filter problems during a flight from Denver to Tokyo yesterday and had to stop in Seattle. Though the problem was unrelated to the battery fires that caused the planes to be grounded earlier this year, any mechanical malfunction will not help the Dreamliner's image. Separately, Boeing won several orders at the Paris Air Show yesterday, including commitments for 102 extended 787 jets.  

Boeing operates as a major player in a multitrillion-dollar market in which the opportunities and responsibilities are absolutely massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. The Fool's premium research report on the company provides investors with the must-know issues surrounding Boeing. They'll be updating the report as key news hits, so don't miss out -- simply click here now to claim your copy today.



Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2499399, ~/Articles/ArticleHandler.aspx, 7/22/2014 5:48:57 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement