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)

Stocks stumbled last week amid concerns about slowing global growth, set off by the Federal Reserve decision not to raise interest rates. The broad market fell slightly for the week ended Friday, reversing the nearly 2% rise that had been reached ahead of Thursday’s Federal Open Market Committee meeting. Prior to the meeting, market participants appeared pretty evenly divided as to whether there would be a hike. Yet Friday’s big losses suggest that an increase was expected, if not desired, by investors.

The FOMC left the federal-funds target rate band unchanged at zero to 0.25%. Fed Chair Janet Yellen highlighted weak signs of inflation and the potential negative impact of global economic and financial developments on the U.S. while implying that the Fed had been ready to raise rates.

Last week, the Dow lost 0.3%, or 49 points, to 16,384.58, and the Standard & Poor’s 500 index lost three points to 1958.03. The Nasdaq Composite bucked the trend slightly and rose 0.1%, or five points, to 4827.23.

The worm has turned—perhaps permanently—when it comes to the market’s reaction to Fed efforts to keep rates low. As recently as this past spring, the central bank’s reluctance to hike occasioned stock rises and celebrations. The same stance now has investors fretting about economic growth in the rest of the world and the attendant impact on U.S. multinationals’ corporate profits.

The current easy-money policy, which has worked for six years, is no longer enough to get stocks going, says Steven Sosnick, senior trader at Timber Hill. Another round of quantitative easing would be fraught with difficulties, given that it would indicate lack of growth, which would spook investors. At some point the economy has to deliver, he says.

John Manley, chief equity strategist at Wells Fargo Funds Management, remains optimistic that the U.S. economy will revive. Manley “guesses” there will be a hike next month, and that the market will view it positively. It will be viewed as a neutral stance, not “tightening,” and “the Fed saying the U.S. economy is OK.”

The parlor game—will the Fed raise this year?—goes on, with two more FOMC meetings left: Oct. 27-28 and Dec. 15-16.

The Fed is beginning to lose credibility, Kenneth Polcari, director of NYSE floor operations at O’Neil Securities, suggests. The Fed could have hiked back in the spring, when the world seemed to be in a better place economically. “A 25-basis-point [increase] is nothing…but now the Fed is backed into a corner,” he says. “Will it be October or December? That’s a bad place to be.”

Yellen has also opened the Pandora’s box of a third Fed mandate, related to global growth, in addition to those pertaining to employment and inflation, he says. What will happen in December, if global markets and economies are still in turmoil, he asks. Does U.S. monetary policy depend on that now?

Expect volatility over the next few weeks as the market searches for directional signs. On Thursday, Yellen’s planned speech on inflation could move stocks. Then third-quarter earnings season kicks off in the second week of October, giving investors a better sense of how the slowdown in emerging- markets growth has affected corporate profits. Until then, the market might lurch about without much sustained direction.

(Source: Barrons Online)

A rocky week on Wall Street ended solidly in the black, as the Dow Jones industrials recorded their largest weekly gain in nearly six months. But investors still sounded rattled as they await the Federal Reserve’s decision this week about whether to raise interest rates.

“The overarching theme is that volatility will be here to stay—intraday, intraweek—until we get the answers to two questions,” says Lori Heinel, chief portfolio strategist at State Street Global Advisors. “Where is global growth headed? And what is the Fed going to do?”

Investors cheered news of continued gains in the job market. The number of job openings in the U.S. grew to a new record of 5.75 million last week, according to the Department of Labor, which has been tracking openings since 2000. China cut its expected growth rate to 7.3% from 7.4%, but vowed to introduce more stimulus measures. In general the news out of China seemed incrementally better, or at least not appreciably worse, and that seemed to lift investors, said Keith Lerner, chief market strategist at SunTrust Private Wealth Management.

The Dow jumped 331 points, or 2.1%, last week, to 16,433.09. The Standard & Poor’s 500 rose 40 points to 1961.05. The Nasdaq Composite index rose 138 points, or 3%, to 4822.34. Still, there’s little indication the gains will stick. The S&P 500 has flip-flopped from gains to losses and back again for 10 straight weeks. For the Dow, it has been nine weeks.

Indeed, a pessimistic streak runs through the market. Investors pulled $16.2 billion out of equity funds in the week ended Sept. 9, Lipper data show. A Merrill Lynch analysis estimates that outflows have totaled $46 billion over four weeks. A survey by Investors Intelligence showed more investors were bearish than bullish for the first time since October 2011—although some interpret that as a contrary indicator.

Lerner says that the markets are still in the process of bottoming after the panicky selloff in late August. These kinds of corrections tend to result in herky-jerky trading for weeks, if not months. But stocks eventually bounce back. Lerner says there are six other times in history when markets fell 10% or more in four days. Every single time, the market rose within a year.

In the near term, the Fed’s actions at its Sept. 16-17 meeting should determine trading patterns. The Street is clearly flummoxed. About half of the 78 economists surveyed by Bloomberg predicted the Fed will lift rates, but traders seem less convinced. Fed-funds futures indicate a 28% chance of a rate increase.

If the Fed chooses to raise its interest-rate target, the market would have a “knee-jerk negative reaction,” Heinel predicts.

A change in rates could unsettle global markets and help tip them into recession.

(Source: Barrons Online)

Bullish investors got a sour start to the long weekend, as stocks sold off indiscriminately on Friday after a mixed jobs report that traders believe makes it more likely the Fed will raise rates later this month. The market has bounced wildly over the past three weeks, mostly because of fluctuations in Chinese economic data and stocks. But Friday’s fall was entirely homegrown, given that the Chinese market was closed for a holiday.

“It was an emotional reaction to the jobs report and the Fed,” says Ryan Larson, head of equity trading at RBC Global Asset Management. “There’s not much behind it beside emotion. It should really be seen as a good thing when the Fed thinks the economy is strong enough on its own.”

The U.S. added 173,000 jobs in August, well below expectations for 217,000. But previous months were revised higher by 44,000, and other data also reinforced a healthy labor market—wages are up 2.2% year over year and corporations are replacing part-time workers with full-timers, a good sign for the economy.

“Full-time jobs surged 435,000, which is incredible—in fact, the big story here is that in the past two months, amid a sea of global turbulence, corporate America had enough confidence in the domestic economic outlook to boost full-time employment by a cool one million, as 750,000 part-time positions were replaced,” writes David Rosenberg at Gluskin Sheff.

Of course, every good sign for the economy comes with a caveat: Traders are convinced the Fed is now more likely to raise interest rates this year. Futures markets now predict about a 30% chance of an interest hike this month, and a nearly 60% chance in December.

The Dow Jones Industrial Average fell 541 points, or 3.2%, on the week, to 16,102.38. The Standard & Poor’s 500 index dropped 68 points to 1921.22. The S&P, which has fallen for two of the past three weeks, is down 9.8% from its closing high in May. The Nasdaq Composite fell 144 points, or 3%, to 4683.92.

All of the S&P 500 sectors fell at least 2% on the week, although utilities, health care, and financial stocks were particularly weak. Energy stocks gave up more ground as oil prices fluctuated, with Nymex crude falling nearly 8% on Tuesday before recovering to end the week up 1.8% at $46.05 a barrel.

The volatility is clearly spooking some investors—retail investors have reduced equity allocations by 2.4 percentage points in August to 65%, according to the American Association of Individual Investors. That’s the lowest percentage allocated to equities in 10 months. Maybe they heard that the market tends to fall in September; it’s the only month of the year where the average performance of the Dow is negative over the last 100, 50, and 20 years, according to Bespoke Investment Group.

China has caused much of that anxiety, as investors fear the stock selloff and economic slowdown could be contagious. Earlier in the week, U.S. stocks dropped on data showing Chinese manufacturing had fallen to a three-year low. The data throw into doubt China’s projections that its economy will grow 7% this year.

Stock market volatility is likely to continue until the Fed meeting on Sept. 16-17. Vacationing traders may also keep one eye on Chinese markets on Monday to see how they open following the two-day holiday there.

(Source: Barrons Online)

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)

So much for the lazy late summer.

Traders had to take cover against a market swoon that clobbered stocks around the world last week. Intensifying anxiety about slowing economic growth, particularly in China, sent stocks down a painful 6% on the week. It culminated in a nasty blowoff Friday, when the Dow Jones Industrial Average fell more than 500 points.

Energy equities were most punished, down 8.7%. Investors fled to “havens” like utilities and telecom stocks, down only 1% to 3%, and U.S. Treasury bonds. The yield on the 10-year note fell to 2.05% from 2.19%. (Bond prices move inversely to yields.)

Following the devaluation of the Chinese yuan, and a poor China data point released Friday, “…investors have come to the realization that global growth in the second half isn’t going to reaccelerate as previously hoped,” says Margaret Patel, a portfolio manager with Wells Fargo Asset Management.

Energy prices haven’t stabilized either, again contrary to expectation. Crude oil fell 5% last week to $40.24 per barrel. “Stocks have been priced for growth, and if that doesn’t happen, it takes the air out of the market,” she says.

For years, the emerging markets were where U.S. multinationals, especially companies in the Dow, have been making investments for growth, says Paul Karos, a money manager with Whitebox Advisors. Now there’s fear of an emerging-markets recession, he adds.

Last week, the Dow plunged 5.8%, or 1018 points, to 16,459.75, while the Standard & Poor’s 500 index shed 121 to 1970.89. For both, it was the biggest weekly point decline since October 2008. The Nasdaq Composite fell 6.8%, or 342, to 4706.04. World stocks dropped 6%. Markit said Friday that the August preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index, a measure of national manufacturing, fell to 47.1 from July’s 47.8, to the lowest level in over six years. Below 50 is seen as a sign of contraction.

On a relative basis, the U.S. looks like an oasis of growth, but can it hold up if other economies recede? American domestic data will be key for U.S. stocks in the next few months, Karos says. “We still see slow but positive U.S. growth,” he says. A few weeks ago, most investors thought the Federal Reserve would raise interest rates in September. Now, not so much.

(Source: Barrons Online)

A further slump in oil prices, a growing sense the Fed will soon raise interest rates, and a host of disappointing earnings reports made stocks fade like a slow summer sunset last week. The Dow notched its longest losing streak in four years, falling for the seventh straight day on Friday. Investors who weren’t on their sailboats didn’t seem particularly alarmed. The indexes are still much closer to their record highs than they are to bear market territory. And it’s August after all.

“On a Friday in August, it’s hard to draw conclusions about markets,” says Scott Clemons, chief investment strategist at Brown Brothers Harriman. “I don’t tend to read a whole lot into August trading patterns for the obvious reasons of thin markets and light participation.”

Trading on Friday was influenced by the government’s July jobs report, which came in roughly in line with expectations and solidified consensus expectations that the Fed will increase rates in September. The economy added 215,000 jobs and the unemployment rate stayed at 5.3%.

The Dow Jones Industrial Average fell 316 points, or 1.8%, on the week, to 17,373.38. The Standard & Poor’s 500 index dropped 26 points to 2077.57. The S&P has now fallen for five of the past seven weeks, and sits 2.5% below the highs it hit in May. The Nasdaq Composite fell 85 points, or 1.7%, to 5043.54.

Disney (ticker: DIS) led the Dow lower, falling 8.9% on the week after CEO Robert Iger said its sports unit, ESPN, had lost subscribers. The news hurt shares of several media companies, including Time Warner (TWX). Energy companies also slid along with the price of West Texas oil, which was down 6.9% to $43.87. Chevron (CVX) hit a new 52-week low, dropping 5.3% on the week.

(Source: Barrons Online)

Stocks were spanked last week in a global selloff that spared few markets. U.S. major indexes lost 2% to 3%, as investors expressed their dissatisfaction with second-quarter results from several bellwether companies.

Adding fuel to the pyre, continued mixed U.S. economic data and a bearish manufacturing figure from China led to an unhappy Friday, when the broad market fell 1%. In the background, growing ever nearer, is the month of September, when some expect the Federal Reserve to begin raising interest rates. The Fed’s easy-money policy has been a major factor in the six-year rally.

In particular, poor second-quarter results from United Technologies (ticker: UTX) caused a 10% drop in its shares, a major contributor to the Dow Jones Industrial Average’s 3% retrenchment to 17,568.53. United Technologies was worth 80 of the 518-point drop. Only five Dow stocks out of 30 rose on the week. Market sentiment, meanwhile, took a hit from another Dow member, Apple (AAPL). The world’s largest company by market capitalization produced softer-than-expected second-quarter iPhone sales, although earnings were strong.

Last week the Standard & Poor’s 500 index fell 47, to 2079.65, as each of its 10 sectors declined. The Nasdaq Composite lost 2.3%, or 122, to 5088.63. The MSCI World Index dropped 2% on the week.

With Greece out of the headlines—for now—and worries receding about the June plunge in Chinese equities, investors turned to corporate earnings. In contrast to the previous week, they didn’t like what they saw, says Mark Luschini, chief investment strategist at Janney Capital Management.

Several big names posted poor results, leading to increasing worries about the global economic landscape in general, and China in particular, says Dan Greenhaus, chief global strategist at BTIG. On Friday, preliminary data on U.S. manufacturing in July rebounded slightly, but similar data for China fell to a 15-month low. Worries about an interest-rate hike continue to nag investors, he adds.

(Source: Barrons Online)

The stage was set for an ugly week. On Wednesday, with the stock market looking as fragile as it has in months, the New York Stock Exchange abruptly shut down, just after United Airlines grounded its planes due to a network failure. China was trying unsuccessfully to bootstrap its market, and Greece was seen as exiting the euro zone. Through it all, our colleagues at The Wall Street Journal couldn’t even post the news for a time, after their Website briefly went dark.

“You had the recipe, in the middle of the week, for a very quick correction,” says Hank Smith, chief investment officer at Haverford Trust, who notes it has been almost four years since stocks’ last 10% decline. “It’s very easy to get conspiratorial.”

“We wake up the next day, and there was an answer for the NYSE—a software upgrade. China’s market is recovering a little bit. And it looks like Greece and the various European Union regulators are going to come to agreement. It’ll be a welcome relief to get Greece off the front pages of every newspaper in the country.”

As quickly as it came, the fear of a correction was gone, driving Friday’s broad rally, in which the Dow Jones Industrial Average rose 1.2%. The Dow finished the week up 30 points, or 0.2%, to 17,760, while the Standard & Poor’s 500 index finished flat at 2077. The Nasdaq Composite slipped 12 points, to 4998.

Investors’ willingness to embrace tidy answers to big concerns is another sign of the bull market’s durability. The economy looks good enough to keep investors happy, and there’s little angst about the coming wave of second-quarter earnings announcements. Alcoa (ticker: AA) kicked off earnings season last Wednesday. The aluminum maker missed estimates, but more important financial bellwethers are on tap this week. JPMorgan Chase (JPM) and Wells Fargo (WFC) report on Tuesday, Bank of America (BAC) on Wednesday, and Goldman Sachs (GS) and Citigroup (C) on Thursday.

(Source: Barrons Online)

Greece is the word that dominated global financial markets last week, as the country defaulted Tuesday night on a $1.72 billion repayment to the International Monetary Fund. The Greek government initiated capital controls and closed banks, while the country’s prime minister rejected the latest bailout offer from creditors. The government has called for a referendum on July 5 on whether to continue austerity measures insisted on by creditors, including the European Commission, the European Central Bank, and the International Monetary Fund.

Uncertainty about the future of the European Union and its currency led to a global selloff Monday as assets were repriced to account for the new level of risk. The Dow Jones Industrial Average fell 216 points, or 1.2% on the holiday-shortened week, to 17,730, while the Standard & Poor’s 500 index gave up 24.71 points to 2076. The Nasdaq Composite slid 71.29, or 1.4%, to 5009, its second consecutive weekly decline. Markets were closed Friday in honor of Independence Day.

Tuesday’s trading marked the end of the second quarter, in which the S&P 500 fell 4.78 points, snapping a nine-quarter winning streak. The Dow Industrials fell 156.61 points, or less than 1%, with all the losses coming in June. Top Dow performers in the quarter included JPMorgan Chase (ticker: JPM), Goldman Sachs (GS), Walt Disney (DIS), Microsoft (MSFT), and Nike (NKE). Bringing up the rear were Wal-Mart Stores (WMT), Travelers (TRV), DuPont (DD), Chevron (CVX), and Boeing (BA).

The Nasdaq Composite was the best-performing index in the quarter, marking a tenth straight quarterly advance, and ending up 85.98 points, or 1.75%, at 4986.87.

China’s Shanghai composite index continued a two-week slide and entered bear-market territory, down nearly 22% from mid-July in 2014, despite efforts of the government to prop it up by pushing through a rate cut.

Of more importance to investors would be a slowdown in Germany, a concern highlighted by Nancy Lazar, co-founder and chief economist at Cornerstone. The Russian recession and China slowdown have weighed on Germany, the biggest driver of the euro-zone recovery, and business confidence there has fallen, raising the specter of slowing growth. Cornerstone has lowered its 2015 forecast for German gross domestic product to 1.5% from 1.8%, buttressing its view that global GDP will slow.

Supports for the German economy include strong housing data and consumer confidence, driven by low unemployment, accelerating wages, and low interest rates.

(Source: Barrons Online)