Stocks tumbled Wednesday as investors bet that a new U.S. budget deal raises chances the Federal Reserve might start to scale back its support for the economy soon.
Congressional negotiators reached a bipartisan budget compromise late Tuesday that would prevent another government shutdown, if approved by the House and Senate. The deal would set spending levels, reduce the deficit and relieve some of the arbitrary, forced spending cuts.
Some analysts say the deal could make the Fed more likely to announce it will begin trimming its $85-billion-a-month bond purchases as early as next week. Fed chairman Ben Bernanke has said repeatedly that uncertainty about fiscal policy is a threat to the economy.
"This budget agreement probably increases the odds of a taper sooner rather than later," said Ryan Larson, head of equity trading at RBC Global Asset Management.
Still, many investors say the Fed will remain on hold at next week's policy meeting, despite a recent run of strong employment data. The general consensus is that Fed vice chair Janet Yellen, who has been nominated to succeed Bernanke and is awaiting final approval from the Senate, will begin tapering early next year.
What's moving. Twitter ( shares bucked the downward trend and rose slightly. The stock even hit an all-time high of $53.87 earlier in the day. Twitter, which has more than doubled from its IPO price, was a top trending ticker on StockTwits. )
But not all investors were convinced the recent gains would hold, and some were betting Twitter shares will fall.
BlackBerry ( shares ended the day lower, erasing earlier gains. The troubled smartphone maker has been punished this year, with shares down nearly 50%. BlackBerry is set to report quarterly results next week, and some traders are hoping for good news. )
Others say the rebound in BlackBerry's stock is probably not the beginning of a longer-term recovery.
Pandora ( shares sank after rival online radio service Spotify expanded its )free streaming option for mobile devices.
Shares of MasterCard ( rose after the company said it would increase its quarterly dividend by 83% and announced a share buyback program. The company also announced a 10-for-1 stock split effective in January. )
Smith & Wesson ( shares jumped a day after the gun maker )reported quarterly earnings that beat expectations.
Groupon ( shares rose following positive reports from Wall Street analysts. )
Costco ( shares dropped after the company reported quarterly profits that fell just short of analysts' expectations. )
Bank stocks were under pressure one day after federal regulators officially approved new restrictions on risky trading by federally-insured financial institutions. Goldman Sachs ( and )JPMorgan Chase ( each fell more than 1% while )Morgan Stanley (, )Citigroup (and )Bank of America (all finished the day down about 2%. )