After a stormy week that saw stocks push into correction territory Monday, down more than 10% from the highs, the market reversed and finished up 1.1% for the five-day span. At one point Tuesday, the sixth straight day of losses, investors endured a 12% intraday drop from 2015 highs. The relief from volatility is unlikely to last, as the guessing game over when the Federal Reserve will raise interest rates goes on, at least until the U.S. central bank’s Sept. 16–17 meeting.

The damage to market sentiment has been done. Stocks fell 6% the previous week on worries about a global growth slowdown induced by China. That drop intensified in the first part of last week, until New York Fed President William Dudley said Wednesday that given market volatility and foreign developments, a hike at the September meeting “seems less compelling to me than it did several weeks ago.”

But just when the market got accustomed to the new idea that the Fed might not hike rates next month, Fed Vice Chairman Stanley Fischer said on CNBC Friday that it was too early to tell whether a hike is more or less compelling.

The Dow rose 183 points, to 16,643.01, last week, while the Standard & Poor’s 500 index gained 18, or 0.9%, to 1988.87. The Nasdaq Composite jumped 2.6%, or 122, to 4828.32.

“It was an exhausting week, where it felt bad on the way down and just as bad on the way up,” says Brian Reynolds, chief market strategist for New Albion Partners. Many investors missed the quick rebound, watching stocks they’d just sold then go back up. “Investors remain jittery and nervous,” he says.

Blame that on discordant Fed chatter. The Fed maintains that a rate decision will be “data driven,” says Kim Forrest, senior equity analyst at Fort Pitt Capital Group. “If the data continue as is, the Fed will be forced to raise this year,” she says. “September is still on the table.” Should the Fed ignore the data, it will lose credibility, she adds.

“Volatility will remain until the [Fed’s] first move,” says Peter Jankovskis, co-chief investment officer at Oakbrook Investments. He expects a hike by year end but probably not in September. To a degree, he says, the Fed likes to keep the market guessing, as it gives its policy moves more influence.

U.S. data show the economy continues to expand with little sign of inflation: Second-quarter gross domestic product was revised up to 3.7% from the previous 2.3% reading. July durable-goods orders rose 2%, the second consecutive monthly rise.

The fed-futures market, which has a pretty good track record in the past two years, puts the chance of a hike in September at less than one in three the Federal Reserve would raise interest rates in September.

(Source: Barrons Online)