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!