What I’m Watching This week – 24 June 2013

Taper Tantrum

Where you not entertained last week? After the Federal Reserve shared with the world its design for tapering off its economic support, financial markets turned negative in what could be called a perfect financial storm. The end results weren’t pretty with the Dow Jones shedding 271 points or 1.8%, resulting in a positive 12.9% year-to-date total. The NASDAQ lopped off 1.94%, resulting in a lowering of its year to date tally to +11.2%. The S&P 500 lost 2.11%, while sustaining its 11.7% gain on the year. For all three major US indices it was the fourth straight weekly drop out of the past five. Globally, the outcomes weren’t any better with the Global Dow losing 2.94%, lowering its year to date tally to a meek 4.52%. Not only did the Fed create significant anxiety here in the U.S., not to be outdone, China’s central bank ultimately injected additional cash into their financial system to ease concerns about liquidity between banks and bring down money market interest rates that had hit records economic. Toss is the quadruple witching options expiration at week’s end and you had a Kodak moment of global proportions. Okay, perhaps that’s not the best of must see TV, but you get the picture.

Bond investors again headed for the exits, as the 10-year Treasury yield soared almost four-tenths of a percentage point last week alone, topping 2.5% for the first time since August 2011, and bond prices generally fell sharply across the board. With an improved economic outlook here in the U.S., the dollar continued its rise versus the global currency basket, soaring higher. This week’s economic calendar may substantiate the Fed’s improving economic outlook. Data on manufacturing shows an expected 3% jump in the May durable goods, Housing sector strength is likely to be revealed in the April FHFA Home Price Index. Consumer confidence reports arrive on Tuesday and Friday and personal income and spending for May on Thursday.

I remain optimistic. As the second quarter finally comes to a close, last week’s Fed announcement bought forward the pullback I had anticipated for months. First Quarter’s performance was outstanding and Second Quarter was a disappointment (to be mildly kind), as the U.S. economy is improving slowly, however the economic fundamentals are the laggard and will continue to bear a fair amount of bitter fruit as we chart a course into Q3. A yellow flag is appearing on the horizon as we begin July as the (IMF) International Monetary Fund signals that aid payments to Greece could be in jeopardy later this summer because of a shortfall in funding bringing the ‘soft underbelly of Europe’ back into the picture. You didn’t actually think the Europe Union would let everybody else have all the fun now, did you? I’m vindicated, cautious, and of course optimistic for the week ahead.

It’s Summer Time!! Have an amazing week!

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What I’m Watching This Week – 17 June 2013

Genie in a bottle

Worries about the Fed’s policy objectives have added volatility and caused many to question their confidence in their positions. From Asia to Europe and back here in the U.S., the chatter concerning the Federal Reserve’s easing intentions took hold and markets tumbled. The message however is clear, the Genie is coming out of the bottle and the measures of monetary stimulus used to support sustainable improvements in economic trends will be varying soon. The US equity markets last week stumbled in reaction, sending the Dow Jones lower with a 1.17% drop to 1507, reducing the year-to-date gains to 15%; the NASDAQ sliced off 1.32% to 3,424 for 13.38% on the year; the S&P500 pitched 1% lower to 1627 and 14.06% year to date. The CBOE VIX rose 28.5% to 17.15 as further proof of investor trepidation. This uncertainty has left some investors shell-shocked before this week’s two-day policy meeting that will climax on Wednesday with an interest rate announcement, including the Fed’s latest disclosure on economic growth, inflation and employment.

Bernanke has been rather eloquent in previous testimony that the Fed’s policy will be purely driven by economic data. The latest monthly employment report showed 175K jobs added in May, beating the forecasts of 164K and more job-seekers are re-entering the marketplace. Should the employment outlook indicate a sustainable improvement, I would expect at least a vague pronouncement from Bernanke as to a target period where the Fed intends to begin its move.

I remain optimistic. This week could possibly reveal whether all the scuttlebutt has any validity or not. And if so how would an unwinding take place and realistically limit a severe reaction to that news. Also this week, there will be significant manufacturing and housing data as well as the quadruple witching options expiration on Friday. The potential for news to move the markets is certainly present this week. Uncertainty isn’t the optimum word that would work; now is not the time to be complacent. If you haven’t begun drilling down on your own portfolio and asset allocations, get on it, now. Second quarter is coming to an end in little less than two weeks and monetary stimulus programs are in the crosshairs; don’t let yourself become that target silhouette. Don’t discount the unknown. I remain positive, optimistic and confident. The sky isn’t going to fall but at the same time, I’d much rather be in position to make 3% than lose 8% any day of the week.

Have a great week!

What I’m Watching This Week – 10 June 2013

Everything went better than expected…

After Wednesday’s 217 point loss on the Dow, it came back impressively with a 207 point gain on Friday as the monthly nonfarm payroll report provided just enough positive spin to raise all the indexes. The Dow Jones eked a .88% advance, the NASDAQ squeaked out a gain of .39% and the S&P 500 rounded out the week with a .78% achievement. Heck, I always say it’s always better to make 3% than lose 8%, okay, so we didn’t even get past 1%, but you know what I’m saying, right! A little volatility and a little positivity make for a seemly market moving experience.

The jobs number held ominous implications for both US growth and Fed policy matters and Investors relaxed just enough to exhale, for the time being. The unemployment rate showed a continued steadying of the economy but not enough improvement to bring on a hurried end to the Fed’s economic support via its monthly, $85 billion bond buying program. The ADP numbers a few days earlier in the week held an ominous suggestion that a potential disenchantment was on the Friday horizon; however the numbers were just enough to dissipate some anxiety, for the time being at least. A September-December timeframe looks to be more demonstrative of a Fed move to the lessor number of $65 Billion, but then again, I don’t really see the Fed making that significant of a movement right before the holiday season. My guess is that we’ll see something in Q1 of 2014.

I remain optimistic. The US economy added 175K jobs in May, all in the private sector, and conversely the unemployment rate ticked higher to 7.6% from 7.5% as more workers returned, encouraged that a hiring phase will continue a while longer. Much better than anticipated economic growth in Japan overshadowed China’s wavering Q2 growth; the volatility of the Dollar/Yen currency pair notwithstanding. The European situation remains mixed, with Germany’s DAX moving higher on improved industrial production results that seem to suggest growth is returning and an improving Eurozone growth expectation, if you minus Spain, Greece, Italy, etc. In the economic sea, some boats are floating, some remain tied to the docks and others are taking on a surge of water and have no life jackets to speak of. I’ll remain optimistic and cautious, regardless.

Have a great week and have a happy upcoming Father’s Day.

What I’m Watching This Week – 3 June 2013

Brutally efficient head fake?

Reader Tabitha S. (like me, an avid San Francisco 49er fan) so adored my conclusion to last week’s newsletter, that she remarked that “the U.S. markets ankles must have ruptured, Achilles tendons exploded and knees buckled, as Friday’s market collapse was like seeing a linebacker destroyed by an opposing teams wide receiver, who just tossed him aside with a head fake and stiff arm as he charged down the field.” What a great summation Tabitha, and thank you for the reminder that the NFL season begins afresh in less than 100 days. 

The US equities bobbed and weaved last week as the economic data didn’t impress and the markets reacted to the downside. Friday’s gut punch, in my opinion, was the last opportunity to “sell in May and go away” and that’s exactly what transpired when investors pent up anxiety finally decided to make an appearance based upon concern that the Fed is considering to wind down its Quantitative Easing(QE)program and shareholders took their profits and headed for the door. Last week’s market pullback sent the Dow Jones 1.2% lower, leaving the May gain at 2.8%; the S&P500 down 1.1% on the week, for a 2.1% monthly gain; and the NASDAQ 0.1% lower for a 4.8% monthly ascent.

The first half of 2013 has provided some very noteworthy numbers for the U.S. markets with the Dow reporting a solid 15.35% gain, the NASDAQ registering 14.45% and the S&P 500 sitting at 14.34%. All fine representations for performance, and as we begin to close out Q2 and enter into the second half of the year. A dose of uncertainty is making headway into the overall picture with doubts over the Fed’s monetary direction, enduring, tepid manufacturing growth and continued high unemployment are being matched with a number of negative global circumstances: the appearance of waning Chinese growth, sharp decline in Japanese shares, continued European recession and record high unemployment of 12.2% and Middle East turmoil. Has the first half of 2013 been just a brutal head fake?

I remain optimistic. Fatigue within the markets would be expected and to be honest, welcomed, as we enter the summer. A shallow pullback to allow the overheated indexes to recoil and allow the sweltering temperatures of summer to replace the red hot equity markets wouldn’t necessarily be a bad thing. To use an automotive analogy; check the radiator fluid, hoses and gaskets, replace the plugs and wires, change the oil and filters, rotate the tires; we’ve got another seven months to go. Nobody wants to break down on that desolate highway, 500 miles into the desert, with buzzard’s and coyotes circling around for an easy kill. May’s monthly nonfarm payroll report that may decide the fate of Federal Reserve’s policymaking regarding its aggressive bond buying program; given its importance, Friday release will perhaps have more than the usual interest. I remain cautious, confident and optimistic.

Have an outstanding week!