U.S. stocks declined as Federal Reserve Chairman Ben Bernanke said on his latest speech that the U.S. economy is growing faster than expected and the Federal Reserve is not committed to the current $75 Billion stimulus into the economy. Bernanke is expected to leave Jan 31st, 2014 as Janet Yellen takes the position of the next Fed Chairman.
The reason this shocked investors is because the market right now is heavily depended on the $75 Billion stimulus, because it’s keeping interest rates low, near zero, to promote borrowing and lending and thus having more money supply in the economy. So if the economy is getting stronger than expected investors feel that the Fed will reduce the stimulus program earlier and more drastically, thus investors felt discouraged and pessimist to invest.
China’s manufacturing sector has also declined which shows the Chinese economy is slowing down. China’s manufacturing index came at 51 for December when economists forecasted it to be at 51.2. Since US depends on China’s exports of manufactured materials, when it tends to slow down it also takes the U.S. with it due to it’s close ties.