U.S. stocks plunge on talk of Fed tapering; Dow falls 1.19%

Investing.com - U.S. stocks dropped on Friday after a key Federal Reserve official said the U.S. central bank could begin tapering stimulus programs in October, while fears that a fiscal impasse in Washington could threaten to shut down the government fueled losses as well.

Trading volume was heavy, as stock index futures, stock index options, stock options and single stock futures expired, which happens on the third Friday of March, June, September and December.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 1.19%, the S&P 500 index fell 0.72%, while the Nasdaq Composite index fell 0.39%.

The Federal Reserve could decide at its October monetary policy meeting to taper its USD85 billion monthly asset-purchasing program, St. Louis Fed President James Bullard said Friday.

On Wednesday, the Fed decided to leave the stimulus program unchanged, surprising many who were expecting a decision to trim the amount of assets purchased a month by USD10 billion or even more.

The Federal Reserve will hold its next monetary policy meeting Oct. 29-30 but is not due to hold a press conference that day, which left many expecting a decision to taper asset purchases to come in December, though don't rule out action next month if economic indicators improve before then.

“This was a close decision here in September, so it’s possible you could get some data that change the complexion of the outlook and could make the committee be comfortable with a small taper in October,” Bullard told Bloomberg Television.

“It’s possible, but I’m not saying it will happen. You have other meetings after that.”
Monetary stimulus tools boost stock prices by keeping long-term borrowing costs low.

Still, stocks finished the week higher after the Fed said it was keeping monetary stimulus programs in place.

Elsewhere in the U.S., the House of Representatives gave the green light to legislation to fund the government through Dec. 15, however, lawmakers voted to defund President Barack Obama's healthcare bill, the Affordable Care Act.

While the bill faces little chance of survival in the Senate, not to mention a presidential veto, the posturing sparked fears of brinkmanship and inaction that sent investors seeking safety in the dollar ahead of a fiscal showdown brewing in the U.S.

Failure to agree on debt-ceiling solution could result in a government shutdown in October, and the growing uncertainty sent investors snapping up safe-haven dollar positions.

In company news, Blackberry shares plummeted by more than 17% after preliminary second-quarter results disappointed investors as did news the company plans to cut 4,500 jobs, or about 40% of its workforce.

The company's shares were briefly halted prior to announcing the disappointing results.

Leading Dow Jones Industrial Average performers included Pfizer, up 0.49%, JPMorgan Chase, up 0.23%, and Hewlett-Packard, which was down 0.14%.

The Dow Jones Industrial Average's worst performers included Caterpillar, down 3.09%, Microsoft, down 2.44%, and United Technologies, down 1.91%.

European indices, meanwhile, finished lower.

After the close of European trade, the EURO STOXX 50 fell 0.16%, France's CAC 40 fell 0.06%, while Germany's DAX 30 finished fell 0.21%. Meanwhile, in the U.K. the FTSE 100 finished down 0.44%.