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Stocks suffer worst slump of the year

April 04, 2012|By Joe Bel Bruno
  • Stocks were facing their worst drop of the year on Wednesday.
Stocks were facing their worst drop of the year on Wednesday. (Spencer Platt / Getty Images )

Wall Street took a drubbing Wednesday as investors worried that the Federal Reserve might not be willing to pump more money into the U.S. economy.

Minutes released from the central bank’s last rate-setting meeting indicated that policymakers appeared reluctant to inject more cash into the financial system. There had been hopes the Fed would buy bonds — a strategy known in the past as quantitative easing — to boost the economy.

Stocks suffered their worst decline so far this year. About two hours before the closing bell, the Dow Jones industrial average had dropped 159.27 points, or 1.21%, to 13,040.24. Broader markets also fell, with the Standard & Poor’s 500 index down 18.18, or 1.29%, at 1,395.18 and the tech-heavy Nasdaq composite losing 58.73, or 1.89%, to 3,054.87.

One of the reasons the Fed might not launch another round of bond buying is that the economy has continued to show signs of a recovery. The latest batch of data released Wednesday from the ADP payrolls firm showed U.S. employers added 209,000 jobs last month, a promising sign ahead of Friday’s release of payroll data by the Labor Department.

Despite the stock market’s big drop, major indexes continue to trade at multiyear highs. The Dow and S&P 500 last week recorded the best first-quarter performances since 1998, and the Dow had the biggest quarterly point gain in history.

Analysts are scrambling to figure out if the big first-quarter jump might lead to a pullback especially considering there were deep stock market corrections in spring 2010 and summer 2011.

“It would not take much of a market pullback for sentiment to turn sour on stocks,” Cannacord Financial analysts told clients. “After all, the S&P 500 is as overbought as it was in April  2010 and February 2011. Why should investors bet that the unwinding of overbought conditions will not turn into another stock market rout?”

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