Stocks sink on Fed worries, but Twitter surges
NEW YORK (AP) — Twitter popped, but the rest of the market dropped.
Twitter wowed investors with a 73 percent surge on its first day of trading Thursday. The broader market, however, had its worst day since August as traders worried that the Federal Reserve could cut back on its economic stimulus.
The cause of that worry was a surprisingly strong report on U.S. economic growth in the third quarter. That led investors to believe the Fed could start pulling back as soon as next month, sooner than many anticipated.
After 33 record-high closes this year, an increasing number of investors believe the stock market has become frothy and is ready for a pullback. The first-day surge in Twitter, a company that has never made a profit, was the latest example.
“The market had rallied a heck of a lot and to justify further gains, we really need to see the economy improving or corporate earnings picking up,” said Alec Young, global equity strategist with S&P Capital IQ.
The Standard & Poor’s 500 index fell 23.34 points, 1.3 percent, to 1,747.15. Even after Thursday’s drop, the index is still up 22.5 percent this year. The last time the benchmark index had a bigger gain for a whole year was in 2009.
The Dow Jones industrial average retreated from the record high it set the day before, giving up 152.90 points, or 1 percent, to close at 15,593.98.
The Nasdaq composite lost 74.61 points, or 1.9 percent, to 3,857.33.
Twitter soared $18.90 to $44.90. Twitter priced its initial public offering Wednesday night at $26 per share.
What got traders concerned about a pullback by the Fed was a report from the government early in the day that the U.S. economy expanded at an annual rate of 2.8 percent in the third quarter, up from 2.5 percent in the previous quarter and more than economists anticipated.
The robust growth “certainly raises the possibility of the Fed pulling back in December,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “The Fed is going to test the water.”
The Fed is buying $85 billion of bonds every month to hold down interest rates and encourage hiring and borrowing. The program has also helped drive the stock market rally by lowering bond yields, making them less appealing to investors.
Another key economic report comes out on Friday, the government’s jobs survey for October. Economists forecast that U.S. employers added 122,000 jobs, down from 148,000 the month before, reflecting a 16-day partial shutdown of the federal government.
The jobs report “has people a little on edge” said Erik Davidson, deputy chief investment officer of Wells Fargo Private Bank. “We’re expecting a modest number but it’s really hard to say what the impact of the government shutdown will be.”
In government bond trading, the yield on the 10-year Treasury note fell to 2.60 percent from 2.64 percent.
Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.