Investors Brace for Sell-Off in U.S. Stock Markets

U.S. stocks are likely to witness a massive sell-off on Thursday following an overnight plunge in global markets.

Stock futures in the U.S. are in a deep decline: The major indices show drops of about 2 percent each.

Foreign equities tumbled largely in response to the Federal Reserve’s grim warning about the state of the U.S. economy and the establishment bond swap program, or Operation Twist, aimed at keeping long-term interest rates low.

"Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated," the Fed warned. "There are significant downside risks to the economic outlook, including strains in global financial markets."

Major Asian markets dropped sharply, the Nikkei-225 of Japan fell 2.07 percent; the Shanghai index lost 2.78 percent; while the Hang Seng of Hong Kong plummeted 4.85 percent.

European bourses are undergoing a bloodbath sell-off. As of mid-session trading, Britain’s FTSE-100 index is down 4.60 percent, France’s CAC-40 has plunged 5.51 percent; and the German DAX tumbled 4.47 percent.

French banks, including Credit Agricole, Societe Generale and BNP Paribas, are incurring heavy losses. Last week, Moody’s downgraded French banks due to their heavy exposure to the Greek debt crisis.

Economic news continues to be gloomy. The International Monetary Fund recently reduced growth estimates for the developed world (U.S., Europe, Japan), while the Eurozone’s private sector (i.e., Markit's purchasing managers' index) contracted for the first time since 2009.

Even China, the world’s economic growth powerhouse, indicated that its all-important manufacturing sector contracted for the third consecutive month.