Daily Archives: September 19, 2013

Heads Up!

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THE FED SURPRISES!

The Federal Reserve unexpectedly refrained from reducing the $85 billion pace of monthly bond buying, saying it needs to see more evidence of improvement in the economy.

“The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. While “downside risks” to the outlook have diminished, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement.”

Chairman Ben S. Bernanke and his policy making colleagues refrained from paring record accommodation as rising borrowing costs show signs of slowing the four-year expansion. Treasury yields have jumped since May, when Bernanke first outlined a possible timetable for a reduction in the asset purchases that have swelled the Fed’s balance sheet to $3.66 trillion.

The Fed chairman has orchestrated the most aggressive easing in the Fed’s 100-year history, pumping up the balance sheet from $869 billion in August 2007 and holding the main interest rate close to zero since December 2008.

“Asset purchases are not on a preset course, and the committee’s decisions about their pace will remain contingent on the committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.”

The “Heat Map”

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Most of the time, the U.S. stock market
looks to 3 factors to support its upward trend – let’s grade each of the
factors:

CONSUMER
SPENDING:  I grade this factor a C (neutral).

THE
FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.  And, the FED today (9/18/2013)
announced it intends to continue the highly accommodative policy to stimulate
the economy.

BUSINESS
PROFITABILITY:  I graded this factor an A (very favorable).   

NOTE: 
the above grades are unchanged from last week.

The Numbers

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Last week, U.S. Stocks, Foreign Stocks, and Bonds all increased.  During the last 12 months, STOCKS outperformed BONDS.

LAST WEEK -Here is a look the cause of the volatility created this week by hedge funds, institutions, and those we call “traders.”

Returns through 9-13-2013

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

    .3

-3.3

-2.6

  2.6

 4.6

4.6

US Stocks-Standard & Poor’s 500

  2.0

20.2

18.2

17.1

 8.6

7.4

Foreign Stocks- MS EAFE Developed Countries

  2.4

 11.4

16.7

  5.5

  .9

4.9

Source:
Morningstar Workstation. Past performance is no guarantee of future
results. Indices are unmanaged and cannot be invested into directly.
Three, five and ten year returns are annualized excluding dividends.

 

“Your Financial Choices”

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“Your Financial Choices”   The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP, AEP.  This week Laurie will discuss articles she has written for LV
Woman magazine and looking for the financial benefits.

Laurie will take your calls on this topic and other inquiries this week.  This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet.  For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org. 

Personal Notes

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One of the most
exciting events in sports is a “pennant race,” assuming your team is in
it.  At the beginning of the season, I
was hoping for merely a winning season for the Pittsburgh Pirates.  With that objective met (last week), the next
objective is to make the playoffs and their “magic number” to be a wild-card
team in the  playoffs is 6 – any
combination of Pirates victories or Washington National losses totaling 6 will
result in a playoff spot.  Yes, I realize
the Pirates are one game behind the St. Louis Cardinals for the National League
Central Division.  But, if you know anything
of the past several years of Pirates second half collapses, you know why I am
only cheering for the wild-card playoff spot (for now!).  11 games remain with plenty of opportunity of
both the thrill of victory and the agony of defeat.

The Markets This Week

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The stock market jumped sharply last week, making up
for a lack of trading volume with enthusiastic price bidding. The likelihood of
an attack on Syria faded, and investors turned festive, sending share prices up
2% to 3%. Stocks completed a rare seven-consecutive-day win streak last
Wednesday.

A
few weeks ago, a U.S. missile attack on Syria seemed imminent, but that’s on
hold after Moscow-brokered talks began last Thursday on a plan for Syria to
surrender its chemical weapons. With U.S. sabers sheathed for now, investors
are calmer, but the ups and downs in these talks will probably lend some
unwelcome volatility in the next few weeks.


To
some extent, last week’s big rally was also a function of the growing
acceptance of a bullish view that the Federal Reserve will not remove as much
bond-buying stimulus as it signaled back in June. The Fed’s $85 billion in
monthly bond buying has been a major factor in the stock market’s rally over the
past two years by keeping interest rates artificially low.


The Dow Jones Industrial Average climbed 454 points,
or 3%, to 15,376.06. It’s down 2% from record highs set last month. The
Standard & Poor’s 500 index gained 33 points. That’s about 1% below the
all-time high of 1709.67 hit on Aug. 2. The tech heavy Nasdaq Composite index
gained 1.7%, or 62, to 3722.18.


“I’m getting a sense that the market believes
the Fed tapering will be lighter than previously thought,” says Joseph
Amato, president of fund manager Neuberger Berman. The Fed’s policy-setting
committee meets Sept. 17-18, and that “will clearly be the driver of
near-term market sentiment,” he says.


In general, the tapering consensus appears to be
coalescing around an expectation that the Fed will indicate a $10 billion to
$20 billion reduction in bond buying. That would be much less than the $40
billion curtailment that the Fed signaled last June. If the Fed meets market
expectations, that will probably send stocks higher, Amato adds.


Brian Reynolds, chief market strategist at floor
broker Rosenblatt Securities, agrees. Such an outcome would likely push the
S&P 500 index through the 1700 level, where it has met some resistance in
the run-up of the past two weeks.


Stocks
haven’t been able to top the August high because traders are pulling in their
horns ahead of the Federal Open Market Committee meeting. If the Fed meets
consensus, the old highs will be taken out in a few weeks, Reynolds predicts.


He calls scenarios where the Fed delays any tapering
or where it follows through on the larger $40 billion reduction “low
probability outcomes.” In the former case, the market would probably bolt
higher, but in the latter case, there would likely be a “big
selloff.” (Source:  Barrons Online).