The Dow Jones Industrial Average (^DJI) fell 76 points. That's well off session lows, but it still ends the Dow's quirky streak of 20 straight gains on Tuesday. That's the longest streak of gains on any one day of the week since 1968. Meanwhile, the S&P 500 (^GSPC) lost 9, and the Nasdaq (COMPX) dropped 20.
The decline was set off by comments from Esther George, president of the Kansas City Fed. In prepared remarks, she said it was time for the Fed to scale back its bond buying program.
Most market pros believe that program is the major factor in the market's rally over the past year.
Some stocks in the energy patch lost ground. Exxon-Mobil (XOM) and Chevron (CVX) both fell nearly 1 percent. Valero Energy (VLO) dropped 3 percent.
Retailer Home Depot (HD) fell 2 percent, and a long list of Dow stocks lost more than 1 percent, including Microsoft (MSFT), Boeing (BA), Alcoa (AA) Hewlett-Packard (HPQ) and IBM (IBM). Big Blue made a $2 billion acquisition to beef up its cloud computing operatoins.
Merck (MRK) bucked the downtrend, rallying for a second day in a row. It reported positive test data Sunday on a cancer fighting drug.
And GM (GM) gained 1.5 percent. It's being added back to the S&P 500 less than four years after declaring bankruptcy.
G-III Apparel (GIII), which makes goods for the likes of Calvin Klein and NFL teams, soared 21 percent on better-than-expected earnings.
But Dollar General (DG) slid 9 percent. It lowered its forecast for the full year.
Others big movers:
Salesforce.com (CRM) slid 7 percent after agreeing to pay $2.5 billion dollars to buy a business software maker, ExactTarget (ET).
Pandora (P) fell 5 percent. That's on top of Monday's 10 percent decline on reports Apple (AAPL) is about to launch a competing music streaming service.
The biotech firm Biogen (BIIB) also took a hit for a second day in a row, losing another 3 percent.
And Monster Beverage (MNST) rallied 10 percent on a report that sales jumped last month.
-Produced by Drew Trachtenberg
86 Percent of Americans Can't Ace This Simple Personal Finance Quiz. Can You?
Fed Official's Remarks End Dow's 20-Tuesday Winning Streak
A. More than $102
B. Exactly $102
C. Less than $102
A. More than $102
You’ll have more than $102 at the end of five years because your interest will compound over time. In other words, you earn interest on the money you save and on the interest your savings earned in prior years. Here’s how the math works. A savings account with $100 and a 2 percent annual interest rate would earn $2 in interest for an ending balance of $102 by the end of the first year. Applying the same 2 percent interest rate, the $102 would earn $2.04 in the second year for an ending balance of $104.04 at the end of that year. Continuing in this same pattern, the savings account would grow to $110.41 by the end of the fifth year.
Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today?
The reason you have less is inflation. Inflation is the rate at which the price of goods and services rises. If the annual inflation rate is 2 percent but the savings account only earns 1 percent, the cost of goods and services has outpaced the buying power of the money in the savings account that year. Put another way, your buying power has not kept up with inflation.
True or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less.
Assuming the same interest rate for both loans, you will pay less in interest over the life of a 15-year loan than you would with a 30-year loan because you repay the principal at a faster rate. This also explains why the monthly payment for a 15-year loan is higher. Let’s say you get a 30-year mortgage at 6 percent on a $150,000 home. You will pay $899 a month in principal and interest charges. Over 30 years, you will pay $173,757 in interest alone. But a 15-year mortgage at the same rate will cost you less. You will pay $1,266 each month but only $77,841 in total interest—nearly $100,000 less.
C. Stay the same
D. There's no relationship to bond price and interest rates.
When interest rates rise, bond prices fall. And when interest rates fall, bond prices rise. This is because as interest rates go up, newer bonds come to market paying higher interest yields than older bonds already in the hands of investors, making the older bonds worth less.
In general, investing in a stock mutual fund is less risky than investing in a single stock because mutual funds offer a way to diversify. Diversification means spreading your risk by spreading your investments. With a single stock, all your eggs are in one basket. If the price falls when you sell, you lose money. With a mutual fund that invests in the stocks of dozens (or even hundreds) of companies, you lower the chances that a price decline for any single stock will impact your return. Diversification generally may result in a more consistent performance in different market conditions.