As the financial markets brace for a bumpy road ahead in light of the Federal Reserve’s latest announcement, investors everywhere seem to be on high alert. The Federal Reserve announced its intention to reduce its QE support program, prompting an immediate reaction from markets worldwide.
The Fed’s decision on Wednesday sent shock waves through financial markets. The fact that the Fed is winding down quantitative easing raised worries about a reduction of stimulus funding taking effect in the near future. Traders were quick to respond by dumping stocks, which led to a temporary sell-off of most major indexes worldwide.
Equities saw an abrupt sell-off in the opening hours of trading in reaction to the Fed announcement. The Dow Jones Industrial Average dropped more than 200 points, while the S&P 500 finished the day down almost three percent. Smaller stocks were not spared either, as the Russell 2000 declined by more than four percent. The Nasdaq Composite dropped 2.7 percent on the day, with all three major indices closing at nearly their lowest levels of the month.
Investors moved out of equities and into safe-haven assets, such as gold, U.S. Treasury bonds, and the Japanese yen. Both gold and the yen rose sharply following the announcement, as investors moved into the safe-haven assets. U.S. Treasury bond yields also fell sharply, as demand for the debt instruments rose, resulting in a lower yield on the 10-year note.
In the currency markets, the U.S. dollar dropped significantly in the aftermath of the Fed’s announcement, while the euro and the British pound both moved up against the dollar. The euro posted its biggest one-day gain against the dollar in two years, while the pound jumped more than one percent on the news.
Overall, the markets have reacted negatively to the Fed’s latest announcement, with losses across a variety of asset classes. Investors will continue to watch closely as the financial markets adjust to the impact of reduced stimulus funding.
