U.S. Stocks Plunging on Fed’s Grim Outlook on Economy

U.S. stocks have opened sharply lower in Thursday morning trading following an overnight plunge in global markets.

The major indices – Dow Jones Industrial Average, S&P 500 index and Nasdaq have each dropped at least 2.5 percent in the opening minutes of trading.

The yield on the 10-Year Treasury has dropped to 1.77 percent, while oil and gold futures are dramatically lower.

Investors appear to have ignored a relatively benign initial jobless claims report.

Equities have 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 overnight, 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 4.88 percent, France’s CAC-40 has plunged 4.83 percent; and the German DAX tumbled 4.43 percent.

French banks, including Credit Agricole, Societe Generale and BNP Paribas, are incurring particularly 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.