NEW YORK (CNNMoney) — Investors aren’t digging the Twist. Stocks plunged after the Federal Reserve made it official — no change in rates and Operation Twist is a go.
Stocks ended near the lowest levels of the day after the Fed said it will shift $400 billion from short-term Treasuries into long-term Treasuries in an effort to boost lending and spur the economy.
While Operation Twist was exactly what investors had been anticipating, meeting expectations with the bare minimum came up short of pleasing them.
The Dow Jones industrial average (INDU) dropped 284 points, or 2.5%, with all but one of the blue-chip index’s 30 components closing in the red.
Hewlett-Packard (HPQ, Fortune 500) was the only Dow component that traded higher, spiking almost 7% amid rumors that HP’s board is considering a shakeup that would include replacing current CEO Leo Apotheker.
The S&P 500 (SPX) fell 35 points, or nearly 3%. Even the tech-heavy Nasdaq composite (COMP), which had been trading higher most of the day, closed down with a drop of 52 points, or 2%.
“Operation Twist was priced into the market, and investors needed a twist on the twist — something more,” said Doug Roberts chief investment strategist for Channel Capital Research.
While the Fed said it will also reinvest the proceeds from maturing mortgage-backed securities into more mortgage-backed securities, Roberts said that additional step is still lacking.
What would help satisfy financial markets is if the Fed were to bite the bullet and pump more money into the economy with another round of Treasury buying, or QE3, he added.
But experts said the Fed, which is running out of policy tools, will probably hold back from expanding its balance sheet unless investors and consumers grow warier.
Read more here via Market Report – Sep. 21, 2011 – CNNMoney.
