The U.S. stock market is riding a rollercoaster at the moment. Even intraday trading, including today’s, looks like a fast-moving ride at the fun fair. However dizzying it may seem though, it would be wise not to panic or let seasickness overcome you.
Yesterday, the market averages dropped significantly in reaction to disappointing economic data—but not without substantive moves up and down in between as the benchmarks recovered some of the heaviest losses of the day. Similar to yesterday’s action, today the main indices managed to pare the losses. All said, however, shares that comprise the large-cap S&P 500 index are down about 7 percent since their September 18 peak.
Let’s face it: growth jitters are the main culprit. Yesterday, for instance, manufacturing numbers in the state of New York missed expectations, and retail sales posted a decline for the first time in eight months. Read more about All About Growth 10-16-14
The S&P 500 Index, which had declined to an eight-week low on Tuesday, rose yesterday by the most this year, as stocks jumped after the minutes of the September meeting of the Federal Open Market Committee were released.
The key to the U.S. market rebound was the Fed’s retention of its language promising that it would maintain low overnight lending rates for a “considerable time” after ending the record, expansionary bond buying program. The details of the Fed discussion confirmed that the central bank does not plan to raise overnight lending rates any time soon, and assuaged fears that we might see higher short-term rates as soon as in six months.
The need for patience stems from two sources: the strong U.S. dollar and the global slowdown. Fed officials see the potential for further dollar appreciation, resulting from the European economic slowdown and low inflation. Read more about The Minutes that Impacted the Market 10-09-14
The late September departure of PIMCO bond guru William Gross from the giant fund and company he had co-founded led Morningstar to swap its “gold” quality rating to a lower-grade "bronze" for the company’s flagship PIMCO Total Return Fund due to the “uncertainty regarding outflows and the reshuffling of management responsibilities.” While investors withdrew more than $23 billion from the fund in September—the largest single month withdrawals for any fund in history—on October 1, PIMCO Total Return alone still managed roughly $200 billion and withdrawals had already slowed “considerably.” Read more about A PIMCO Story 10-02-14
Stocks were lower again today, after a strong (the biggest in a month) rally yesterday. The 2,000 level on the S&P 500 is proving to be a hard barrier to effectively surpass. And the reasons for that aren’t just technical.
This week, news on the housing and consumer front, for instance, were rather weak, with the National Association of Realtors reporting on Monday that sales of previously existing U.S. homes fell in August for the first time in five months. This came as a surprise, especially after homebuilder sentiment that was so strong in last week’s report. Housing starts and building permits were also below expectations this past week. The latest home price index showed an increase of only 0.1 percent, less than the expected 0.5 percent. Consumer confidence, as measured by the Bloomberg Consumer Comfort index, fell to a nearly four-month low. Read more about Key S&P 500 Level Still Elusive 09-25-14
The Federal Reserve Board’s decision yesterday was highly anticipated—but the language remained unchanged. The Fed indicated that it will not raise federal overnight lending rates (aka “fed funds rate") for a “considerable time”—sticking to the formula that served well in months prior.
Still, some changes are coming. The committee clearly has to take the improving economy into consideration. Next year, the rates are forecasted to move higher: the median estimate is 1.375 percent at the end of 2015. Overnight lending rates will reach 3.75 percent two years later, in late 2017, the Fed estimated. Still, the Fed remains flexible—and, indeed, wants to be seen as flexible as not to spook investors. Read more about Good News from the Fed 09-18-14