NEW YORK — Stocks fell sharply Wednesday after Federal Reserve Chairman Ben Bernanke confirmed investors’ fears that the economy has weakened. Interest rates dropped in the Treasury market as investors sought safer places for their money.
Bernanke told a congressional committee that the economy is fragile, but he did not forecast that it would fall back into recession.
The Dow Jones industrial average, which was modestly higher before Bernanke’s prepared remarks, fell 109 points as investors absorbed his assessment of the economy, and his statement that the Fed is ready to take action if the economy worsens.
Bernanke’s comments, part of his semiannual report to Congress, weren’t surprising given the disappointing economic reports and corporate earnings numbers released in recent weeks. But they were enough to upset investors who are nervous about the state of the recovery.
The Fed still expects the economy to expand this year,but the central bank has lowered its forecast for growth.
Oliver Pursche, executive vice president at Gary Goldberg Financial Services, said investors took Bernanke’s comments as “not exactly a rah-rah-USA type of endorsement.”
Craig Peckham, market strategist at Jefferies & Co., said stocks fell not because of anything Bernanke said, but what he didn’t say about any plans to stimulate the economy. Although Bernanke said the Fed was “prepared to take further policy actions as needed,” he also said, “we are not prepared to take any specific steps in the near term” because the Fed is still evaluating the economy.
The Dow fell 109.43, or 1.1 percent, to 10,120.53. The broader Standard & Poor’s 500 index fell 13.89, or 1.3 percent, to 1,069.59. The Nasdaq composite index lost 35.16, or 1.6percent, and fell to 2,187.33.
Two stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume was 4.81 billion shares.
Treasury prices surged and their yields fell as investors sought out the safety of government debt after Bernanke’s testimony. The yield on the benchmark 10-year Treasury note, which helps set rates on mortgages and other kinds of loans, fell to 2.88 percent from 2.96 percent late Tuesday.
Investors have been selling stocks since late April on a combination of weak economic indicators and disappointing earnings reports. The Dow, which reached a 2010 high of 11,205.03 on April 26, has fallen 10 percent as investors have seized on any piece of bad news and shrugged off more positive signs about the economy.
Although companies including IBM Corp. and General Electric Co. have beat analysts’ second-quarter earnings estimates, their revenue has not met expectations and investors have been selling. The belief in the market is that companies aren’t getting the strong sales needed to fuel the economic recovery.
Business, Pages 26 on 07/22/2010