After a solid rally, stocks now face the Fed

The central bank's decision on whether to trim its bond buying may dictate if the market has a good week. Oracle and FedEx earnings are on tap.

By Charley Blaine Sep 13, 2013 6:49PM
Trading floor © Digital Vision Ltd./SuperStockThis week was easy for the stock market. In fact, stocks had one of their better weeks for the year; the Dow Jones Industrial Average ($INDU) enjoyed its best week of the year with a 3% gain.

For that we can thank the lessening of tensions over Syria, although one should probably assume Syria hasn't gone away.

Next week is trickier. The Federal Reserve's policy-making body, the Federal Open Market Committee, will meet for two days and then announce Wednesday how much it will trim back -- or taper -- its $85-billion-a-month  bond-buying program. That is, if the Fed does anything at all.

Right now, it looks as the Fed will announce a small taper, taking the bond buying down to $80 billion or $75 billion. That helps explain why interest rates didn't move much this past week. The 10-year Treasury yield ended Friday at 2.898%, down from 2.938% the week before.

So be ready. And enjoy your winnings this past week. The Dow was up 75 points on Friday to 15,376 on its way to that 3% gain for the week.

The Standard & Poor's 500 Index ($INX) added 5 points to 1,687.99. It was up 2% on the week, its sixth-best week of the year. It's also just 1.3% below its record close of 1,709.67, set on Aug. 2.

The Nasdaq Composite Index ($COMPX) rose 6 points to 3,722 and ended the week up 1.7%.

For the year, the Dow is up 17.3%, with the S&P 500 up 18.3% and the Nasdaq up 23.2%.

So much for September being a terrible, no-good, awful month five years after the 2008 crash.

But half the month is still to come, and there's October after that. And, for those who want to be frightened, October 2008 saw the Dow fall 14.1%, with the S&P 500 down 16.9% and the Nasdaq 17.7%.

Moreover, stocks have basically stalled since early August. The Dow and S&P 500 dipped as much as 5% from their Aug. 2 highs and then rebounded, although neither has regained its highs. The Nasdaq, however, has moved to levels last seen in September.

Wednesday is an important day for the Fed. Its announcement will come out at 2 p.m. ET, and Fed Chairman Ben Bernanke will hold a news conference afterward to discuss the decision.

It is true that Fed days -- or days when Bernanke is, say, testifying on Capitol Hill -- can create some wild volatility.

On May 22, when Bernanke suggested to Congress that the Fed might taper its bond-buying program (with an eye toward ending its next year), the Dow shifted from a gain of 155 points to a loss of 80 points -- or a swing of some 235 points.

When Bernanke discussed tapering at the news conference after the Fed's June 18-19 meeting, the Dow fell 206 points on June 19 and an additional 354 points the next day.

Bond traders interpreted the Fed talk about tapering as a signal the central bank was going to actually push interest rates higher. The 10-year Treasury yield moved from 1.61% in May to a high of 2.98% on Sept. 5 and then drifted back.

This Fed meeting has the added importance because of all the speculation over who will succeed Bernanke as Fed chairman. The front runners are former Treasury Secretary Larry Summer and Janet Yellen, the Fed's vice chairman.

The market moved not just because tensions eased over Syria and its alleged use of sarin gas against its citizens.

The market's strength was in industrial stocks such as Boeing (BA) and United Technologies (UTX), airlines, including Delta Air Lines (DAL), homebuilders like M.D.C. Holdings (MDC) and consumer stocks like Walt Disney (DIS) and Netflix (NFLX).

Chip giant Intel (INTC) was the Dow's leader on Friday, after an upgrade and a target boost to $30 from Jefferies. 

There is more to the week ahead than just the Fed. On Wednesday, the government reports on August housing starts, with the National Association of Realtors releasing its report on August existing-home sales on Thursday.

There's a Consumer Price Index report due Tuesday. The Philadelphia Federal Reserve Bank will release a widely watched report on manufacturing on Thursday.

Wednesday offers a number of earnings reports that will offer clues on where the economy stands: Cracker Barrel (CBRL), FedEx (FDX) and General Mills (GIS) in the morning and Oracle (ORCL) and office-furniture makers Herman Miller (MLHR) and Steelcase (SCS) after the close.

Also reporting next week: Adobe Systems (ADBE) after Tuesday's close; ConAgra (CAG), Pier 1 Imports (PIR) and Rite Aid (RAD) before Thursday's open, and Tibco Software (TIBX) after Thursday's close.

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62Comments
Sep 13, 2013 7:05PM
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The market should be dictated by actual results not printed money simple stuff really!
Sep 13, 2013 9:10PM
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Who has the brains and discipline to unhook from this FED garbage?  The FED has a 1 or 2 % effect on anything in business yet we are acting like it is 80%.  Who is the greater fool? It is time for America to wave bye bye to foolishness and get back on the bus to reality.  Politicians are evil scumbags who we all need to be distanced from. They extract individual freedom and power not just money.  Refuse to allow yourself to recognize them. You want to live a free happy successful life then get the FED and politicians out of it.  The only revolution we need is to unthink politics.  Yea, discipline how and what we think will render amazing results.  Be the personal leader of your own life. How has one non productive  entity managed to handcuff the greatest economic engine ever devised by man? Good lord are we all this effen stupid? Do something American Charlie, declare war on stupid people who keep listening to this FED nonsense.
Sep 13, 2013 10:44PM
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Interest rates have to go up but when are they going to go up for retail depositors too? If the Fed keeps short term rates near 0% and Mr. Market raises rates on 10 year Treasuries to 3-4% or more then the average populace is taking it in the shorts for the 3rd or 4th time since 2007.  Why would anybody want to borrow money at 5% when they can't get anything on their own funds? The Fed could say that banks must pay deposits the 10 year Treasury yield less 2% which would now be 0.9% instead of the 0.1% or less most banks pay. The banks were bailed out with tax payers funds and now it's time to start paying depositors (taxpayers) interest on their deposits instead of Wall Street bank stock holders dividends.
Sep 13, 2013 9:04PM
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ONCE THE Q E IS REDUCED EXPECT HISSY FIT FROM WALL STREET.

THE FED DID IT'S JOB LONG AGO. EVERYTHING ELSE WAS IN EXCESS

IF THEY ARE TO WEAK TO STAND AFTER 5 YEARS LET THEM FALL AND FAIL.

 AS IN NATURE,,,,,,,,,,,SURVIVAL OF THE FITTEST,,,,THE REST ARE FOOD  
Sep 13, 2013 7:39PM
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New York Fed-- there's $630 TRILLION in derivatives outstanding that prioritize ahead of stocks. Wall Street eats it once the Fed cuts off the fiat infusion.

 

Dallas Fed-- the average household has lost $50,000 to $120,000 over the past 5 years. MAN, that QE helped... who?

 

America to Ben-- if you don't man-up... you'd better be REALLY fast.

Sep 13, 2013 7:37PM
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If the Fed says "give it all back with interest" then things might get okay soon. If they keep letting Ben flip flop, then we go to war soon over his phony money. Hey Ben Bernanke... where do you go once now that you've screwed the whole world? It ain't Disneyland, that's what you've made out of the Fed.
Sep 14, 2013 12:37AM
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We need to audit the FED! Reinstate Glass Steagall. After all it was Larry Summers that conned Clinton to repeal it and deregulate. Now he is going to be next Fed Chairman, boy! Just goes to show its by design.
Sep 13, 2013 7:58PM
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Fake Money going into the stock Market, What happens when they stop?????

Sep 13, 2013 9:24PM
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Before the Fed does anything... the Gramm Leach Bliley Act has to go and restore Glass Steagall as it does...

Calling Gramm Leach Bliley what it is-- crooked legislation, and abolishing it, restores Glass Steagall immediately. Read this-- it's actually happened:

The following was a discussion point in the lengthy and now irrelevant review of the Dodd Discussion Draft of proposed legislation during the run-up to the Dodd-Frank Act. It is not included in the abridged version of the Tsunami Thread here at Duffminster, but is being reproduced since it demonstrates exactly what Summers supported and on what grounds he should be disqualified as a candidate for the Fed Chair. They knew what they were manipulating and they knew the consequences!

. . . Reference has been made to the Gramm-Leach-Bliley Act but I'm not aware that anyone ever posted the pertinent section that unleashed the derivatives to allow the bankers/brokers/insu​rance people to corrupt the global financial system. It's very short. It's amazing how little space you need to ruin the world.

.

(2) The Commission is prohibited from registering, or requiring, recommending, or suggesting, the registration under this chapter of any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act). If the Commission becomes aware that a registrant has filed a registration application with respect to such a swap agreement, the Commission shall promptly so notify the registrant. Any such registration with respect to such a swap agreement shall be void and of no force or effect.

(3) Except as provided in section 78p(a) of this title with respect to reporting requirements, the Commission is prohibited from -

(A) promulgating, interpreting, or enforcing rules; or

(B) issuing orders of general applicability; under this chapter in a manner that imposes or specifies reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading with respect to any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act).

It speaks for itself.

Sep 14, 2013 2:33PM
Sep 14, 2013 8:53AM
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Of course anyone can comment on these blogs, but the reality is not the "simple" pronouncements made here by those who don't really know.

But also, of course, what the Fed does is important to markets because its all about risk/reward and interest rates.  When the 10 year Treasury is paying 1.6 %, a money manager can correctly and ethically move more money into dividend stocks paying 3 or 4 % because the risk/reward ratio is quite clear.

When 10 year Treasuries are paying 2.9 %, the money manager has a fiduciary responsibility as a professional to adjust the portfolio he or she is managing accordingly--which would mean to shift some funds into the lower risk fixed income asset and out of the equity position.

Stock prices of individual companies will have spikes upward or downward because of their performances, but the general trend during periods of rising interest rates will be based on portfolio adjustments to reduce risk.
Sep 14, 2013 9:40AM
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One of the most misunderstood forces in the Universe is Gravity. There is also the Gravity of the sheer volume of Stocks and Bonds available to investors. That in itself is why the Global FEDS are trapped and it's only getting worse. What do we know so far.

The Federal Reserve's Balance Sheet liabilities, now over $3.6 Trillion Dollars.

Verizon prices RECORD $49 Billion Dollar Bond Deal. It dwarfs the last biggest deal by Apple, the former Record holder at $17 Billion Dollars. Both deals in the same year. Of course Apple Cash Balance is huge, Verizon's is massively in DEBT!

Relative to recent interest rate history, interest rates have been slowly rising in spite of the fact that actual Bonds outstanding have been soaring Globally. That will change eventually and so will the impact.

While the FED is important to a point, not to a point where they have clearly abandoned commonsense. It's not just posters stating this, it's some of the best minds on Wall-Street. It's some of the best minds off Wall-Street. IN fact, it's even among the 7 Fed Members of the Board themselves.

Now here's the problem with too much public disagreements with the Chairman of the Fed, Markets get rattled. Therefore there is far too much power in one position and the ability of members to have constructive disagreements. Far too much power with just one Entity. Anyone that has actually peered deeply into what is actually going on at the FED are shocked and dismayed.



Sep 14, 2013 1:28PM
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Well Active for starters....We had two-gun slinging Presidents in 1987 and 2008..

We do not have a gun-slinger today...2013.

 

In 2004-2008 maybe longer as we know(for sure), Banks and our Financial Systems were allowed to run Amok....Which was detrimental to the well being of all American Citizens.

We had a miss-managed Manufacturing Industry collapsing under it's own weight.

Then we had a Housing collapse. Loss of Jobs, etc.,etc...

And we were buried deeply into Two, life draining and monetarily draining Wars...

Thus one of the "Worst Recessions" this Country has ever experienced...

And then a Global Economic Collapse, that we were a major Domino in the set-up.

 

Moving ahead to 2013....We have borrowed against our Futures and our Children's also...

We had no choice in my opinion, thinking this was done many decades ago; And our alternative NOW would have been devastating, a much deeper Depression than in the past.

There are still Economic problems in parts of the Eurozone...

China's expansion was/is unprecedented; And appears there could be consequences yet to come.

 

The United States is recovering with some pitfalls, that need to be guarded against.

Banks are hoarding money, but still up to some bad practices.

The Rich are hoarding more money...evading taxation 

And some Corporations are hoarding money...evading taxation.

The Middle Class is dwindling...

The Lower Class are getting poorer...

And all the above are expecting the Government to support everything...above.

None of this, is contributing to a "sound recovery" in my opinion.

It is not a great scenario for the time. It could be much better.

One positive, is the ending of two wars hopefully. 

 

Active you tell us about Oct. 1987; I've done enough.. 

Sep 14, 2013 3:58PM
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Fatty does get on his kicks, occasionally...I just call it schizophrenia...It fits, like some others.
Sep 15, 2013 3:32PM
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The market is dominated by a few players, they are trying to sell the idea that QE tapering is not relevant. It´s a great opportunity for the Fed to taper significantly, ending this distorted policy.
Sep 15, 2013 11:08PM
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Obama should be impeached for lawless manipulation of stock with fed money using his middkmen and all of them profiting from inflating stocks of his campaign supporters using priviledged information and money with no collateral and selling this stocks to innocent people  and 401k at high prices.This ie stealing..this is illegal and lawless and congress should stop it to protect innocent people that are honest.he and all of them together  makes so much money with this illegal manipulations he can brive senators, fed  chairmen and judges.justice is still waiting for honest people to do their  job that understand freedom is not free

Sep 15, 2013 9:29PM
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Dow Futures up 165 points as Summers bows out of Fed Chairmen candidate.
Sep 14, 2013 9:12AM
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"Next time up", Get rid of the FED and don't listen to politicians doesn't seem like  a solution to me. Sounds more like a complaint. How do you invest your money? I would love to hear your thoughts...
Sep 16, 2013 8:08AM
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as I read in an e-mail..." I wonder what it would be like, IF we didn't have a President for 4 years?"
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