Fear of slowing growth pushes down global markets

Trader Gregory Rowe, center, works on the floor of the New York Stock Exchange Friday, Jan. 24, 2014. (AP Photo/Jason DeCrow)

Trader Gregory Rowe, center, works on the floor of the New York Stock Exchange Friday, Jan. 24, 2014. (AP Photo/Jason DeCrow)

Traders Thomas Donato, left, and Ronald Madarasz work on the floor of the New York Stock Exchange Friday, Jan. 24, 2014. (AP Photo/Jason DeCrow)

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Fear is back in the market. Investors are fretting about China’s growth, a plunge in Argentina’s peso and the profit outlook for U.S. companies.

Those worries have converged to set off a two-day rout in global markets, and have sent the Dow Jones industrial average down more than 260 points Friday, its biggest daily point decline since June 20, 2013.

Investors are dumping risky assets like stocks and currencies in countries with troubled governments. They are buying safer ones like bonds and the Japanese yen

KEEPING SCORE: The Dow Jones industrial average was down 237 points, or 1.5 percent, to 15,960 as of 2:40 p.m. Eastern time Friday. The Standard & Poor’s 500 index fell 28 points, or 1.5 percent, to 1,800. The Nasdaq composite was down 72 points, or 1.7 percent, at 4,146.

FLIGHT FROM RISK: The downturn began Thursday following signs that manufacturing was contracting in China, a major importer of raw materials and a key driver of global economic growth. The values of currencies in several emerging markets have dropped. Those markets include Turkey, Russia, South Africa and Argentina.

“All of that is making the market very sensitive and very vulnerable to growth expectations in emerging markets,” said with Anastasia Amoroso, global market strategist at J.P. Morgan Funds.

DOW DOWNER: The Dow has fallen every day this week, leaving it down 3.1 percent. That decline is the Dow’s worst weekly performance since mid-May 2012. Meanwhile, the S&P 500 is down 2.2 percent since last Friday. That’s the index’s worst weekly slide since November 2012.

SMALL CAPS HIT HARD: In another sign that investors are avoiding risk, stocks of smaller companies had even larger declines than broader U.S. market. The Russell 2000 index of small-company stocks fell 2.6 percent, compared with the Dow’s decline of 1.6 percent.

BIGGEST LOSERS: Railroad operator Kansas City Southern fell the most in the S&P 500 index, plunging $ 18.43, or 16 percent, to $ 98.85 after its earnings fell short of what analysts’ forecasts. Tool seller W.W. Grainger Inc. dropped $ 12, or 5 percent, to $ 244.66 after reporting income that also disappointed investors. Engine-maker Cummins Inc. fell $ 5.16, or 4 percent, to $ 126.88.

BROAD DECLINES: Declining U.S. stocks outnumbered rising ones 6-to-1 on the New York Stock Exchange. All 10 industry groups in the S&P 500 fell. Utilities, telecommunication services and consumer staples stocks fell the least. Traders tend to buy those stocks when they want relatively stable, lower-risk stocks that pay high dividends.

SEATTLE’S BEST: Two leading companies from Seattle, Microsoft and Starbucks, were among the bright spots in an otherwise gloomy market. The software maker rose 86 cents, or 2.4 percent, to $ 36.92. Its quarterly revenue and earnings beat Wall Street expectations because of strong sales of its new Xbox One console and Surface tablet. Starbucks, meanwhile, was the third-biggest gainer in the S&P 500 index. It rose $ 2.24, or 3 percent, to $ 75.63, because its quarterly earnings benefited from lower coffee costs and growing global sales.

EUROPE AND ASIA: The worries about emerging markets also sent overseas markets lower. Japan’s yen surged, which hurts the prospects for Japan’s export-driven economy. The Nikkei 225 fell 1.9 percent. France’s CAC-40 index fell 2.8 percent and Germany’s DAX lost 2.5 percent.

TREASURIES AND COMMODITIES: Bond prices rose as investors moved money into lower-risk assets. The yield on the 10-year Treasury note declined to 2.74 percent from 2.78 percent late Thursday.

Associated Press

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Fear of slowing growth pushes down global markets

U.S. jobs picture improving, manufacturing may be slowing

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment aid unexpectedly fell last week, but continued weakness in business spending on capital goods suggested slower economic growth in the fourth quarter.

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U.S. jobs picture improving, manufacturing may be slowing

Fed suggests it"s closer to slowing bond purchases

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Wednesday, May 22, 2013, before a Joint Economic Committee hearing on “The Economic Outlook”. Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs. (AP Photo/Manuel Balce Ceneta)

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Wednesday, May 22, 2013, before a Joint Economic Committee hearing on “The Economic Outlook”. Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs. (AP Photo/Manuel Balce Ceneta)

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WASHINGTON (AP) — The Federal Reserve signaled Wednesday that it’s moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows.

Chairman Ben Bernanke said the Fed could start scaling back its $ 85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in “measured steps” and that the purchases could end by the middle of next year.

He spoke at a news conference after the Fed ended a two-day policy meeting.

After a two-day meeting, the Fed voted to continue the pace of its bond-buying program for now. But it offered a more optimistic outlook for the U.S. economy and job market.

Investors reacted by selling both stocks and bonds. The Dow Jones industrial average was down 90 points shortly after Bernanke’s news conference began. The yield on the 10-year Treasury note shot up to 2.27 percent from 2.21 percent just before the statement came out.

In the statement, the Fed says the economy is growing moderately. And for the first time it said the “downside risks to the outlook” had diminished since fall.

Timothy Duy, a University of Oregon economist who tracks the Fed, calls the statement “an open door for scaling back asset purchases as early as September.”

The fact that the Fed foresees less downside risk to the job market “gives them a reason to pull back” on its bond purchases, Duy says.

The Fed says it will keep buying $ 85 billion a month in bonds until the outlook for the job market improves substantially. The goal is to lower long-term interest rates to encourage borrowing, spending and investing. It hasn’t defined substantially.

The central bank also said that it would maintain its plan to keep short-term rates at record lows at least until unemployment reaches 6.5 percent.

The Fed also said that inflation was running below its 2 percent long-run objective, but noted that temporary factors were partly the reason.

The Fed also released its latest economic projections on Wednesday, which predicted that unemployment will fall a little faster this year, to 7.2 percent or 7.3 percent at the end of 2013 from 7.6 percent now. It thinks the rate will be between 6.5 percent and 6.8 percent by the end of 2014, better than its previous projection of 6.7 percent to 7 percent.

“The more upbeat tone and the change in the unemployment forecast will only encourage expectations for action soon,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, wrote in a research note. “We continue to believe that tapering could start at the Sept. 17-18 meeting.”

The Fed said inflation could run as low as 0.8 percent this year. But the Fed predicts it will pick up next year to between 1.4 percent and 2 percent.

The statement was approved on a 10-2 vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, objected for the first time this year, saying he wanted a stronger commitment from the Fed to keep inflation from falling too low.

Esther George objected for the fourth time this year, again voicing concerns about inflation rising too quickly.

The ultra-low rates engineered by the Fed have helped fuel a housing comeback, support economic growth, drive stocks to record highs and restore the wealth America lost to the recession.

Financial markets have been gyrating in the four weeks since Chairman Ben Bernanke told Congress the Fed might scale back its effort to keep long-term rates at record lows within “the next few meetings”— earlier than many had assumed.

Bernanke cautioned that the Fed would slow its support only if it felt confident the job market would show sustained improvement. And he also told lawmakers that the Fed must take care not to prematurely reduce its stimulus for the still-subpar economy.

The Fed announced after its September meeting that it would purchase $ 40 billion a month in mortgage bonds for as long as it deems necessary. And in December, the Fed expanded the program to $ 85 billion a month, adding $ 45 billion a month in Treasury bond purchases. The Treasury purchases replaced an expiring bond-purchase program.

Job growth picked up after the Fed announced the latest round of bond purchases. Since October, the economy has added an average of 196,500 jobs a month, up from 157,000 a month in the previous eight months.

Last month, the U.S. economy added a solid 175,000 jobs. But the unemployment rate is still high at 7.6 percent. Economists tend to regard the job market as healthy when unemployment is between 5 percent and 6 percent.

Associated Press

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Fed suggests it"s closer to slowing bond purchases