More Clues in the Minute(s) 07-10-14

The minutes of the latest FOMC meeting, held in June, were released yesterday. Typically, investors peruse the minutes for clues on the Fed policy; this time was no exception.

In terms of interest rates, the minutes presented nothing new, suggesting a timeline close to one widely expected by the market. Short-term rates, as was discussed at the meeting, could continue at their current, record-low levels, for some time, until both targets on inflation and unemployment are reached (i.e. after inflation reaches 2 percent and we also see maximum employment).

The market action after the minutes’ release speaks volumes: low interest rates are a positive for risky assets, and a positive for the economy. Also, since the Fed will not move to raise rates immediately after the goals are reached, having some leeway, the market can also breathe easier. Read more about More Clues in the Minute(s) 07-10-14

All the Fireworks and Parties 07-03-14

The end of the latest quarter was marked by continued market strength. Of course, six quarters in a row, the market kept moving higher, and now it has within sights 2,000 for the S&P and 17,000- plus for the Dow Industrials. While pricey, stocks remain attractive, with monetary policy very dovish and economy improving.

Just today, the European Central Bank (ECB) in its meeting kept the euro zone interest rate at its own record-low 0.15 percent. A deposit rate is also unchanged, at negative 0.1 percent.

QE for Europe is still on the table, although, just like last month, the ECB didn’t deem the eurozone economy weak enough to warrant quantitative easing. If prospects for deflation increase, according to the ECB president Mario Draghi, the ECB would consider QE. Most currently, inflation in the Eurozone clocked in at 0.5 percent. Read more about All the Fireworks and Parties 07-03-14

A Cold Shower 06-26-14

By the time you read this, you should know all about the cold winter of 2013/2014, even if you’re lucky enough to live in warmer climates. Investors naturally care about economic growth. The unusually frigid weather that iced the first quarter in the U.S. was on everyone's mind for a while.

Just last week, due to winter-related doldrums, U.S. Federal Reserve officials downgraded their growth expectations for 2014 from the previous 2.8 to 3 percent growth to 2.1 to 2.3 percent. The market has shrugged this off, as it did the previous report that the first-quarter U.S. GDP declined 1 percent.

Here we go again. The first-quarter GDP, we learned yesterday, actually shrank by the greatest amount in five years. The reported 2.9 percent annualized decline is significantly worse than the previous estimate (and greater than that which the economists projected) and, notably, the largest growth downgrade since the records began.
Read more about A Cold Shower 06-26-14

A Non-Event? 06-19-14

Yesterday, at the conclusion of the Federal Open Market Committee’s regularly held two-day meeting, we learned pretty much what most analysts expected. The FOMC decided to continue with its ongoing reduction in the size of asset purchases, again by another $10 billion. This means that, beginning July, the central bank’s total purchases of U.S. Treasuries and mortgage bonds will amount to a total of $35 billion per month.

Of course, as you know, the Fed goes to great lengths to telegraph its intentions ahead of time; market participants also scrutinize every word of the Fed statement and review all speeches and interviews of the Fed officials for more insights into the future policy moves.

The market did move higher after the decision was announced, mostly on the absence of any real change. In the press release that accompanied the news the Fed officials didn’t indicate a change of direction either.
Read more about A Non-Event? 06-19-14

Harsh Winter Impacts the World Bank’s Forecasts 06-12-14

The latest S&P 500 winning streak was broken this week, although the size of the decline indicates nothing more than normal market action. Moreover, it looks like the stock market could actually benefit from a correction. In fact, we haven’t had a correction (typically defined as a decline of 10 percent or more) in more than two and a half years. The S&P has been moving higher without significant interruptions since fall 2011. No complaints here, of course, but a pause would be a welcome one as it could help bringing fresh money into the market.

Last week, the markets got a boost from European Central Bank actions and the central bank's plan to institute negative interest rates and supply banks with a €400 billion liquidity slush fund, plus from economic data here in the U.S. Read more about Harsh Winter Impacts the World Bank’s Forecasts 06-12-14