Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (06/30/13) |
Previous Week (09/13/13) |
Current Week (09/20/13) |
YTD Change |
Week Change |
|
Dow Jones Industrial |
13,104.14 |
14,909.60 |
15,376.06 |
15,451.09 |
17.91% |
0.49% |
|
NASDAQ |
3,019.51 |
3,403.25 |
3,722.18 |
3,774.73 |
25.01% |
1.41% |
|
S&P 500 |
1,426.19 |
1,606.28 |
1,687.99 |
1,709.91 |
19.89% |
1.30% |
|
Russell 2000 |
849.35 |
977.48 |
1,053.95 |
1,072.83 |
26.31% |
1.79% |
|
Global Dow |
1,995.96 |
2,110.64 |
2,299.89 |
2,349.36 |
17.71% |
2.15% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.48% |
2.90% |
2.73% |
97 bps |
-17 bps |
So another Fed meeting has come and gone, but what about the never-ending uncertainty? Despite rumors and speculation to the contrary, Dr. B. and friends chose to “kick the can” down the road again and keep policy unchanged for at least another month or so. While many Fed watchers had been predicting the “beginning of the end” (tapering) to the bond buying program, the policymakers expressed concern about the overall strength of the economy and certain negative repercussions should they act at this time. Investors initially rejoiced over the move (or lack thereof), but confusion and uncertainty returned in the days that followed, two perpetual negatives on the markets. For now, October 29-30 (the Fed next meeting) is just around the corner.
Partisan politics jumped back onto the headlines as the October 1 deadline for a government shutdown moved closer to reality. The blame game began in earnest with the White House and Congress pointing fingers back and forth (so what else is new?) and even Fed Chair Bernanke joined the fray by warning that the bickering and lack of action could prove quite detrimental to the economy and the financial markets. House Republicans claimed to take the “high road” by offering and passing legislation to keep the gov funded through mid-December, but only if funding for Obamacare was eliminated. Even Republican leaders realize that a Democratic Senate will never pass such a measure, but some still earned brownie points with their Conservative constituents at home. October 1 is just around the corner.
In biz news, JP Morgan continues to try to put the “London Whale” fiasco in the rearview mirror and agreed to $920 million in fines (and accepting blame), though the Commodity Future Trading Commission is still pursuing the financial behemoth. Microsoft announced a $40 billion share buyback program and increased its quarterly dividend. Apple started selling its “new new thing” (yet another iPhone) in Asia and Europe and the more expensive model was better received. Blackberry remains in cost-cutting mode and may be planning to lay-off 40% of its staff by the end of the year. Shipping giant and economic bellwether FedEx posted profits that bested expectations amid improving margins.
Investors spent much of the week reacting to news from the Fed. When Lawrence Summer pulled his name out of the running for Bernanke’s replacement (see below), investors were thrilled that a perceived market unfriendly Chair would not be guiding the Central Bank and ripping the Bandaid off the economy (ending bond buying) in one shift move. Buyers reemerged on the news and remained in the aftermath of the policy meeting statement as both the Dow Jones and S&P 500 soared to new highs. Similarly bond yields fell to their lowest level in over a month. By the end of the week, however, investors moved back into profit-taking mode on the reality that the uncertainty of future monetary policy was still around and the markets would have to endure another six weeks of “what ifs” and over-analysis of all Fedspeak. (At least the partisan political bickering brings a nice change of pace.)
Economic Calendar
|
Date |
Release |
Comments |
|
September 16 |
Industrial Production (08/13) |
Manufacturers ramped up production |
|
September 17 |
CPI (08/13) |
Another soft inflation reading |
|
September 18 |
Housing Starts (08/13) |
Building permits at highest level since May 2008 |
|
Fed Policy Meeting Decision |
No change to bond program |
|
|
September 19 |
Jobless Claims (09/14/13) |
Lowest level since 2007 |
|
Existing Home Sales (08/13) |
Best since February 2007 |
|
|
Leading Indicators (08/13) |
Increased more than forecast |
|
|
The Week Ahead |
||
|
September 24 |
Consumer Confidence (09/13) |
|
|
September 25 |
Durable Goods Orders (08/13) |
|
|
New Home Sales (08/13) |
||
|
September 26 |
Jobless Claims (09/21/13) |
|
|
GDP (2nd qtr (revised) |
||
|
September 27 |
Personal Income/Spending (08/13) |
When Larry Summer surveyed the landscape, he realized that he would be facing a challenging confirmation battle as Fed Chair and the friends/enemies accumulated in his life’s work at Treasury and Harvard may not serve him well. (Heck, Bernanke is at least a likable guy and many in Congress act as if he is public enemy number one.) Many investors believed that Summers would be quick to end the artificial stimulus and worried that his views of monetary policy may prove detrimental to the economy. With Summer now out of the running, Vice Chair Janet Yellen became the leading candidate to replace Dr. B. (Does Summers think women are qualified to serve on the Fed Board?)
Before the ink was even dry on the Fed policy meeting statement, St. Louis Fed Prez Bullard was already stirring the pot with speculation that a tapering policy could begin as soon as the late-October meeting. For now, however, Fed officials remained worried that the economy had been showing signs of weakening in recent months and even lowered their growth forecasts for this year and next. They prefer to (over-)analyze another month’s worth of data before reaching such a critical decision.
In reality, the data of the week pointed to a rather promising economy. Industrial production rose in August on solid automaker activity, reducing prior worries about a sluggish manufacturing sector. Housing starts rose again as single-family projects surged by 7%, though the more volatile multi-family category showed weakness. Similarly, existing home sales revealed the best month since February 2007. Jobless claims fell again last week, a strong sign for an improving labor market, though some analysts remain skeptical that the numbers are skewed as computer glitches have prompted reporting problems in California and Nevada. Shifting aboard, the German ZEW economic indicator climbed to its best reading since April 2010, a development that bodes well for the party in power in this weekend’s national elections. (Good luck Chancellor Merkel.) While the Fed and other world central banks are still discussing stimulus efforts, India’s Reserve Bank raised its key lending rate to 7.5%.
On the Horizon… So what now? The Fed meets again on October 29-30 so expect plenty of speculation to continue for the next month-plus. Over the past week or two, investors seemed to have come to grips with an imminent Fed move now, but with the accompanying statement claiming that the officials expect the growth of the economy to (potentially) slow, new uncertainties will envelop the markets. Will earnings season be weaker in the coming weeks? Are the solid housing numbers ready to fall off the cliff as homebuyers end the mad rush to act in the advent of higher rates? Are labor numbers as strong as unemployment claims imply or are computer issues creating a false sense of hope? So many questions…and few were answered this week. And the homestretch of 2013 is just around the corner.
© Brounes & Associates
