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!