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Stocks down after Fed announcement

June 20, 2012|By Andrew Tangel
  • Wall Street reacts to long-awaited Federal Reserve announcement.
Wall Street reacts to long-awaited Federal Reserve announcement. (Richard Drew / Associated…)

NEW YORK -- Wall Street initially jeered and then seem to briefly cheer the Federal Reserve's announcement that it would continue but not significantly expand its monetary stimulus programs. 

The stock market's initial reaction was that of disappointment, as major indexes dropped. An hour after the announcement, however, stocks swung into positive territory ahead of Fed Chairman Ben Bernanke's press conference. Then they went back to negative.

The Dow Jones industrial average was essentially flat at 12,836 points, just before Bernanke's news conference. The broader Standard & Poor's 500 index was down 1 point, or 0.1%, to 1,356. The Nasdaq was up 2 points, or 0.1%, to 2,931.

"The market was set up to be disappointed,” said Jeffrey Cleveland, a senior economist with money manager Payden & Rygel in Los Angeles. 

Cleveland likened the market's reaction to a temper trantrum. Investors did not get news of another Fed round of quantitative easing that would pump more money into financial markets.

“They want more juice. They want more sugar," Cleveland said. "Obviously they didn’t announce more sugar today.”

Investors have been hoping for more stimulus from the Fed as the U.S. economy has seen poor unemployment and other data recently.

“The market thinks that the economy has weakened rather substantially, I think, since the first quarter,” Cleveland said.

Aside from Bernanke's comments Wednesday, investors will likely return their focus to Europe's continuing debt and financial crisis.

The federal government is set to report June employment figures early next month. If the U.S. labor market weakens, it could set the stage for further action by the Fed.

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