Equities sank last week, as markets continue to be roiled by the Federal Reserve’s Sept. 17 decision to hold interest rates at zero, and the ensuing uncertainty about the timing of a rate rise.
The broad market fell 1.4%, with the selloff intensifying Friday, when biotech stocks tumbled sharply in the afternoon. There was no particular catalyst beyond the deterioration in sentiment and a desire by some investors to take down exposure to riskier assets, like small-caps and biotechs, traders say.
Affirmation of a hike this year by Fed Chair Janet Yellen—in a speech after the market closed Thursday—gave stocks a brief boost Friday, but the impetus petered out. Additionally, a strong earnings report from Nike (ticker: NKE), a component of the Dow Jones Industrial Average, pushed the Dow to a gain on Friday.
Last week, the Dow lost 0.4%, or 70 points, to 16,314.67, and the Standard & Poor’s 500 index fell 27, to 1931.34. The Nasdaq Composite dropped 3% to 4686.50.
The market is suffering from the aftershocks of the Fed’s decision, says David Lefkowitz, senior equity strategist at UBS Wealth Management Americas: “It’s still trying to digest what the Fed is trying to communicate.”
In her remarks, the Fed chair suggested overseas developments wouldn’t be important enough to have an impact on the decision to hike later this year, seemingly backpedaling from the Fed’s previous statement.
From week to week, the Fed’s message seems to be different, creating uncertainty, adds Rick Seto, a managing director at Flaherty & Crumrine. Investors need greater clarity to make fundamental investment decisions. “The only people making money now are day traders,” he adds.
“The U.S. is not a zero fed-funds-rate economy now,” says David Seaburg, head of sales trading at Cowen. Friday, the Commerce Department revised its estimate of second-quarter gross-domestic-product growth to 3.9% from 3.7%. The fed funds rate—the overnight lending rate banks charge one another for funds maintained at the Fed—is currently 0% to 0.25%.
“Rate liftoff would give confidence in the American economy. The Fed needs to move in December,” Seaburg says.
(Source: Barrons Online)