U.S. consumers recovered some of their confidence, based on improving views of household finances and economic gains, according to the Bloomberg Consumer Confidence Index. This measure rose to 36.8 for the week ended August 10, up from 36.2 a week earlier when it came in at the lowest point since June 8. This is good news as better consumer sentiment generally indicates improved spending trends, and, after all, consumers support more than two thirds of the U.S. economy. Read more about Confidence Restored 08-14-14
Last week, earlier this week and even today, stocks came under some pressure. Since last Wednesday, when the Federal Open Market Committee (FOMC) reduced the size of quantitative easing by another $10 billion, the market has declined roughly 4 percent, including the worst one-week performance since 2012 last week. The blue-chip index now sits at a two-month low.
The Fed will keep to its taper schedule, apparently, and eliminate the remaining $25 billion in monthly debt purchases with its next two FOMC meetings, completing the process in late October. That does not mean the Fed will reverse its easy money policies with the asset purchases. Far from it: the central bank looks very keen to continue to generate liquidity, albeit via an alternative route, reinvesting significant portions of maturing principal and only ever-so-slowly reducing the Fed balance sheet. Read more about Where's the Beef?
Stocks rode a small carnival ride yesterday after the U.S. Department of Commerce announced that gross domestic product (GDP) grew at an annualized 4 percent rate during the second quarter, better than economists had expected, and after the Fed wrapped up its regularly scheduled meeting.
Today, however, the market was down decisively, and stocks finished July in the red. While here in the U.S. the Federal Reserve’s decision and release of its policy statement yesterday eased concerns over its interest rate policies, enough reasons remain to be worried about the health of overseas economies. Read more about What's Behind the Pause 07-31-14
The markets are forward-looking, as we all know, and share prices are based on the future earning power of the underlying stocks. This begs the following question: could the relatively strong earnings season and the ongoing easy-monetary policies (the Fed is staying the course and the ECB has signaled that it is prepared to do more) outweigh the profit dangers that now stem from the likely increase of sanctions on Russia?
So far, the answer is yes. Stocks rallied on Tuesday and again on Wednesday, to a new record on the S&P 500, as geopolitics took the passenger’s seat beside earnings. Meanwhile, Treasuries also rallied. On Tuesday and Wednesday of this week, the yield on the benchmark 10-year T-note was near a 13-month low—which also means the prices of U.S. Treasuries were nearing a 13-month high. Interestingly, amid the high-quality rally, junk bonds sold off. Read more about Looking Forward 07-24-14
Geopolitics aside, the market keeps its antennae tuned to the Federal Reserve wavelength. This week, Federal Reserve Chair Janet Yellen appeared before Congress with the Semiannual Monetary Policy Report and reiterated the central bank’s concern over “significant slack” in the labor markets and low inflation.
The bottom line: the U.S. economy needs continued prompting and the Federal Reserve plans to provide support from retention of the longstanding ultra-easy monetary policy. Read more about The Fed and Corporate Actions in Focus 07-17-14