Wall St. falls as Fed highlights weak global economy
By Sinead Carew (Reuters) - Wall Street stocks fell in late afternoon trading on Friday as the Federal Reserve's decision to keep interest rates near zero stoked concerns about the potential impact of continuing weak global growth on U.S. companies. Apart from the state of the world economy, the Fed cited financial market volatility and sluggish inflation at home in its decision on Thursday, while leaving the door open for a modest policy tightening later this year. The three major stock indexes were each down more than 1 percent, with all Dow components in the red. "What they introduced yesterday was that they're worried about the effects on U.S. growth based on foreign economies," said Scott Colyer, chief executive officer of Advisors Asset Management in Monument, Colorado. The Fed's decision suggested a global economic environment that is unlikely to foster the kind of earnings growth needed to support stocks at their current, above-average valuations. Despite recent declines, the benchmark S&P 500 is still trading near 15.6 times forward 12-month earnings, above the 10-year median of 14.7 times, according to Thomson Reuters StarMine data. On top of the Fed, Friday also happens to be a so-called "quadruple-witching" day, a period of greater than normal volatility when options on stocks and indexes, and index and single-stock futures all expire, prompting investors to open new positions to replace expiring ones. "You might as well hang on because the last couple of hours can be kind of interesting as people unwind their positions," said Colyer. Third-quarter earnings are already expected to decline 3.7 percent, according to Thomson Reuters data. Worries about slowing growth particularly in China, the world's second-biggest economy, have roiled global markets in recent weeks. "Investor uncertainty will continue and each economic data point and other news out of China will be sliced and diced," said Keith Lerner, chief market strategist at SunTrust Bank in Atlanta. At 2:36 p.m. ET, the Dow Jones industrial average <.DJI> fell 248.33 points, or 1.49 percent, to 16,426.41, the S&P 500 <.SPX> lost 25.04 points, or 1.26 percent, to 1,965.16 and the Nasdaq Composite <.IXIC> dropped 52.02 points, or 1.06 percent, to 4,841.93. All 10 major S&P sectors were lower, with the energy index's <.SPNY> 2.5 percent fall leading the charge as oil prices fell. The financial index <.SPSY> fell 1.6 percent following the Fed decision as banks would have benefited from an interest rate increase. Investors are now focusing on the next Fed meeting on Oct. 27-28, though a growing number of economists, including those at Morgan Stanley and Barclays, now wonder whether the Fed will raise rates at all this year for the first time since 2006. Interest rate futures indicated only a 16 percent chance of a hike at the Fed's next meeting, with a 42 percent chance in December. The CBOE volatility index <.VIX>, known as the "fear gauge", jumped 6.9 percent to 22.61, above its long-term average of 20. Declining issues outnumbered advancers on the NYSE by 2,066 to 945, for a 2.19-to-1 ratio; on the Nasdaq, 1,934 issues fell and 845 advanced for a 2.29-to-1 ratio favoring decliners. The S&P 500 posted 3 new 52-week highs and 17 new lows; the Nasdaq recorded 25 new highs and 45 new lows. (Additional reporting by Tanya Agrawal; Editing by Bernadette Baum)
