Odds favor the Fed will begin taper in September when it meets on the 17th and 18th. The meeting will feature a summary of economic projections and a press conference by Fed chair Bernanke whose second term expires at year-end. Odds favor the speculation he would like to begin the taper before leaving.
It’s not the reduction in Fed bond purchases from $85 billion to $65 billion at issue here. It’s the fact that this would be the first change in Fed policy in more than four years with more to follow.
The BIG question is, has the market factored this in ?
Had the Fed NOT jumped in to stabilize both stock and bond markets after Bernanke’s June 19 reference to a taper in Q4 and the wrap up of the program in mid-2014, the market would have found a comfort level by now, most likely at lower levels.
The result – while the market may shake it off between now and September 17, there is uncertainty about interest rates and the stock market once taper becomes reality, because speculation will then turn to, what happens when the Fed makes its next move, which may be to withdraw from QE entirely by mid-2014.
I don’t see the end of this 53-month bull market, just the potential for an unexpected jolt.
What could override a nasty correction ?
Corporate earnings, which are currently projected to increase 3.3% in Q3 and 9.9% in Q4. If 2014 looks like a barn burner, the correction will have to “wait.”
Then too, the U.S. economy could get an unexpected boost from a rebound in economies in Europe and Asia. So far, that’s more hope than reality, but it will happen.
The market doesn’t need a reason to correct. It can be “technical” - more sellers than buyers.
The S&P 500 has risen 156% since early March 2009 and 19.7% since year-end.
It’s up 8.2% just since the Fed’s hype after Bernanke’s taper comments.
Buyers may simply want the market to digest those moves with a correction or sideways consolidation before buying. Additionally, they may decide to lock in profits.
All things considered,
Technical corrections are a normal part of bull markets and are usually reversed quickly.
What warrants concern is the possibility of something bigger, a correction greater than 3% - 5%, a drop well in excess of 10%.
This is the possibility that I want you to be aware of. It seems the market is basking in a comfort mode, secure that the Fed is there to prop it up with assurances it won’t do anything rash.
Investor’s first read– an edge before the open
S&P 500: 1,707.14
Nasdaq Comp.: 3,692.45
Russell 2000: 1,063.03
Tuesday, August 6, 2013 (9:05 a.m.)
TECHNICAL OBSERVATION – STOCKS:
Alert: I have successively accomplished my goal of helping readers navigate through the plunges in both AAPL and FB and subsequent recoveries. .I may soon drop coverage and either pick up other fallen angels, or begin the technical tracking of stocks on the move.
Apple(AAPL: $469.45 )
Suddenly, it appears the wait for news about a new product or technology innovation is not that far off. Clearly the stock acts like its disgruntled shareholders have parted, removing that persistent selling that crushed the stock between September 2012 and June.
Support loks good between $463 and $468. I would expect some overhead supply to develop between$486 and $492.
FACEBOOK (FB - $39.18)
For the 8th day in a row, FB’s daily low exceeded that of the day before, testimony to the increasing appeal the company’s fundamentals. A move across $40 is likely this week with a stall a smidge above $42.
I DO NOT OWN, NOR HAVE I EVER OWNED APPLE OR FB.
A light week for reports on the economy is shaping up with today’s ISM Non-Manufacturing Index coming at 10 o’clock the highlight. The service industry accounts for close to 90% of our economy. The Fed’s Richard Fisher speaks today at 11:45, Charles Evans tomorrow at 9:30, Charles Plosser Wednesday at 12:30, and Sandra Pianalto at 1:40.
HOME BUYER BUYING PANIC ?
Mortgage rates rising, home prices rising, inventories decreasing !!
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
ISM Non-Mfg. Ix, (10:00): July came in at 56.0 vs. 52.2 in June and a forecast of 53.1
International Trade (8:30) Proj.: $43.0 billion June
JOLTS (10:00) – Job Openings and Labor Turnover-Designed to be an improve over unemployment rate. BLS survey based on employment, job openings, quits, layoffs, discharges, etc. The number of “unfilled” jobs – used to calculate job openings rate is a measure of the unmet demand for labor. Proj.: 3.850 million job openings vs. 3.828 million in May
Consumer Credit (3:00p.m.): Proj.: $15 billion
Jobless Claims(8:30) Proj.: 338,000 week ended 8/3 vs. 326,000 the prior week. Numbers this time of year can be distorted by temporary summer layoffs in auto industry.
Wholesale Trade (10:00) Proj.: +0.4 pct.
“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.
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