In his press conference last week, Fed chair Bernanke was explicit in describing what may happen, what may not, when and when not. He said, "If the incoming data are broadly consistent with this forecast, the committee anticipates it would be appropriate to moderate the pace of purchases later this year...We will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year."
Presumably there is no set timetable, it all depends on the strength of the economy and unemployment. Bernanke was referring to the Fed's forecast for a 3% to 3.5% GDP growth rate and 6.5% unemployment rate in 2014. If QE is needed to boost the economy, it will continue, or be reinstated if it was withdrawn.
But the Street assumed the worst, both stock and bond markets tanked, The Fed scrambled to calm bond markets where the yield on the 10-year Treasury note jumped to 2.61% from 1.63% and the 30-year fixed home loan rate hit a 14-month high at 3.98%.
This week, the Fed dispatched five FRB presidents Richard W. Fisher (Dallas), Narayana Kocherlakota (Minneapolis), Jeffrey M. Lacker (Richmond), and yesterday William C.Dudley (New York), and Dennis Lockhart (Atlanta), all with a similar theme – "Don't sweat it."
Will the Fed's effort to calm fears about something that the Fed's projections indicate is going to happen, probably within a year ?
Or will the Street assume the Fed is going to reduce QE sooner rather than later and sell ?
IF they conclude (right or wrong) that QE is nearing its end, bond and stock markets will plunge, and there won't be anything the Fed can do about it – nothing.
If so, I see a 10% to 15% correction in the market. It doesn't have to be justified just based on uncertainty and fear.
With its frantic attempt to calm the bond market, the Fed may have sucked investors in prior to another tumble.
We are in a "news whipsaw" market with the market surging when the Street thinks Fed withdrawal from QE is not imminent and plunges when it feels it is.
Today is the last day of Q2 and some market action may be impacted by portfolio adjustments to spiff-up quarter-ending reports.
Yesterday, I warned about the news whipsaw after a sharp move up, that goes for today, as well. All it would take would be for a notch up in interest rates, or statement by someone "visible" who doesn't agree with the Fed's Five.
Investor's first read – an edge before the open
S&P 500: 1,613.20
Russell 2000: 979.92
Friday, June 28, 2013 (9:06 a.m.)
Apple (AAPL: $393.78)
IMHO, AAPL's communication with the investment community has been poor. How could it let the investment value of such a fine company simply die on the vine ?
At 9.3 times earnings, yielding 3.10% and sitting on a pile of cash, communicating the merits of this company should be a no-brainer. This is an "image" problem. It's like, it is no longer perceived as a great company.
My message to management is, get off your duff and rebuild the image of an innovator, a company with service second to none, and a viable competitor. Who are you, Apple ? The Street knew who you were a year ago.
Without a big buyer, odds not only favor a test of April's $385 lows, but AAPL is "technically" at risk of dropping below that. I see no good reason for that except the market action of the stock suggests the Street is getting impatient, even worried.
This kind of "despair" often accompanies a reversal, i.e. the stock passed the "ouch" point, but is now at the "I can't stand it anymore" point where investors simply dump it indiscriminately. A 44% drop over the past year should have discounted a lot of problems.
Resistance is $397
FACEBOOK (FB - $24.66)
And once again, a spike up in early trading, this time to $24.65, but this time it didn't sell off, just traded sideways in a narrow range.
Resistance is $24.75
Support is $24.0024.38.
The Street is now faced with a choice – Is it hoping for disappointing reports and an increase in the likelihood that the Fed won't back away from QE soon ? Or will it hope for upbeat reports, a sign that QE has been helping. It can't have it both ways – For access to information including charts and graphics go to www.mam.econoday.com . Great site !
Chicago PMI (9:45) Proj: 55.0
Consumer Sentiment (9:45) Proj: 83.0
Note: The FOMC: Federal Open Market Committee: 12 voting members, 7 from the Fed. Res. Board, 5 from the 12 F.R. Banks.
Tasks: Oversee open market operations (buying and selling U.S. Treasury securities); make key decisions on interest rates and money supply. Establish a target level for federal funds rate (rate commercial banks charge between themselves for overnight loans between institutions that have surplus balances and those that don't.
"Investor's first read – an edge before the open"
The writer of Investor's first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.