After showing a lack of direction throughout much of the trading session on Wednesday, stocks came under considerable selling pressure following the announcement of the Federal Reserve's latest effort to boost the sluggish economic recovery.
The major averages accelerated to the downside going into the close, ending the session near their worst levels of the day. The Dow plunged 283.82 points or 2.5 percent to 11,124.84, the Nasdaq tumbled 52.05 points or 2 percent to 2,538.19 and the S&P 500 plummeted 35.33 points or 2.9 percent at 1,166.76.
The selling pressure on Wall Street emerged after the Fed announced its widely expected move to stimulate the economy by replacing short-term securities in its bond portfolio with longer-term securities.
The Fed said that it intends to purchase $400 billion worth of securities with remaining maturities of 6 years to 30 years by the end of June 2012, funding the purchase with the sale of an equal amount of securities with remaining maturities of 3 years or less.
"This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative," the Fed said.
At the same time, the central bank noted that economic growth remains slow and warned that there are significant downside risks to the economic outlook.
Commenting on the Fed announcement, Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "The big question is whether this latest action will accomplish anything? We doubt it."
"The cost of borrowing simply isn't the problem," he added. "Businesses don't have the confidence to invest and half of all mortgage borrowers don't have the home equity needed to refinance at lower rates."
With all eyes on the Fed, traders largely shrugged off the release of a report from the National Association of Realtors showing a much bigger than expected increase in existing home sales in the month of August.
In corporate news, shares of Microsoft (MSFT) came under pressure on the day even though the software giant announced a 25 percent increase in its quarterly dividend to $0.20 per share. The company also said it is continuing its $40 billion share repurchase program.
Meanwhile, Oracle (ORCL) bucked the downtrend after reporting first quarter results that exceeded analyst estimates. The business software giant also forecast second quarter earnings in line with analyst estimates. Shares of Oracle rose by 4.2 percent to a nearly-two month closing high.
Adobe Systems (ADBE) also closed higher after the publishing and design software maker reported better than expected third quarter earnings and forecast fourth quarter results toward the high end of analyst estimates.
While most of the major sectors came under pressure following the Fed announcement, railroad stocks saw substantial weakness throughout the trading day. The Dow Jones Railroads Index tumbled by 7 percent to an eleven-month closing low.
Steep losses by Norfolk Southern (NSC) and CSX Corp. (CSX) contributed to the weakness in the railroad sector, which came after two coal producers lowered their forecasts for coal shipments this year.
Considerable weakness was also visible among steel stocks, as reflected by the 2.4 percent loss posted by the NYSE Arca Steel Index. The index fell to its worst closing level in over two years amid concerns about the outlook for global demand.
Banking stocks also came under significant selling pressure on the day, resulting in a 5.5 percent loss by the KBW Bank Index. Bank of America (BAC) turned in one of the sector's worst performances after Moody's downgraded its rating on the financial giant's debt.
Commercial real estate, trucking, and oil service stocks also posted notable losses amid the broad based weakness that emerged after the Fed announcement.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region closed mostly higher on Wednesday, although Hong Kong's Hang Seng Index bucked the uptrend. Japan's Nikkei 225 Index edged up by 0.2 percent, while China's Shanghai Composite Index surged up by 2.7 percent.
Meanwhile, the major European markets showed notable moves the downside on the day. The German DAX Index tumbled by 2.5 percent, while the French CAC 40 Index and the U.K.'s FTSE 100 Index fell by 1.6 percent and 1.4 percent, respectively.
In the bond market, treasuries moved sharply higher following the announcement from the Fed. As a result, the yield on the benchmark ten-year note, which moves opposite price, fell by 7.2 basis points to a record closing low of 1.875 percent.
Looking Ahead
Economic data may attract some attention on Thursday, with the Labor Department due to release its weekly report on initial jobless claims. The Conference Board is also due to release its report on leading economic indicators in the month of August.
On the earnings front, delivery giant FedEx (FDX) is among the companies that are due to release their quarterly results before the start of trading on Thursday.
