Why the stock market avoided a meltdown

Stocks looked headed toward an ugly day, until the head of the Boston Fed suggested higher interest rates are not yet necessary.

By Charley Blaine May 29, 2013 7:24PM
Trading floor © Digital Vision Ltd./SuperStockA funny thing happened to the stock market, as it appeared poised to take a really big dive.

It didn't take the big dive. And it didn't  take the big dive because interest rates stopped rising. The 10-year Treasury yield hit 2.17% just after the stock market opened and spent the rest of the day slipping back, ending at 2.124%

The Dow Jones industrials ($INDU), down as many as 180 points in the morning, slowly started to move up, finishing the day with a 107-point loss to 15,303 -- about where it finished on Friday.

Futures trading suggests a flat open for stocks on Thursday. And interest rates may be headed lower.

Is the stock market that obsessed with the level of interest rates? Of course -- and not always.

Right now, investors are trying to infer a certain date on when the Federal Reserve will start to raise domestic interest rates.

As Wednesday began, the story was that rates were about to burst. But Eric Rosengren of the Boston Federal Reserve Bank reminded investors in a Minneapolis speech that staring to dial back the Fed's policy now doesn't make sense. The economy hasn't clearly shown it can grow on its own, he said. After a few more months of consistent job growth, maybe the Fed can ease off the throttle.

There's an irony in this situation. All the gnashing of teeth may mean that interest rates may not rise much at all.

Interest rates will move up -- briefly -- and threaten to choke off the economy. Something like what's happening now happened a year ago. And the Fed will say -- as it has for several years now -- it will cut rates until it gets a sustainable recovery. And rates will move lower.

It sounds cynical, but that's how the central bankers of the world are playing the markets.

The bottom line of what happened on Wednesday was this. The market slumped in the morning and recovered about 40% of what it had lost in the early selling.

The Dow was off 107 points, not a great day but nowhere near the 265-point loss the index suffered on April 15.

The Standard & Poor's 500 ($INX) was off 20 points and ended down 11 points to 1,648. The Nasdaq Composite Index ($COMPX) had been down as many as 38 points; it ended the day with a loss of 21 points to 3,468.

The Dow is still up 16.8% for the year. The S&P 500 is up 15.6%, and the Nasdaq is up 14.8%.

But the interest-rate sensitive sectors of the market fared less well on Wednesday.

The Dow Jones Utility Average ($UTIL) was off 8 points to 485. It's off 9.8% this month.

The Philadelphia Housing Sector Index ($HGX) fell 6 points to 198. It's up 1.9% in May after rising 1.1% in April and 12% in the first quarter.

The iShares Dow Jones U.S. Home Construction exchange-traded fund (ITB), which tracks home builders, fell 77 cents to $24.70. While it is up modestly in May, it is still up 22.3% this year.

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24Comments
May 29, 2013 9:06PM
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Artificial and superficial placation isn't going to hold the inevitable off much longer. Can't we get RID of these grossly incompetent people and get the economy going again? It's impossible to paper push a recovery and while the over-educated are trying, the substance of our economy is dying. The world is more than a quadrillion in debts at near-zero interest rates. Imagine your life when they bump those rates to just 1%. Your paycheck would be next to nothing. Crash it now while you have something to gain... like a life.

May 29, 2013 10:30PM
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UP! UP! and away! in my beautiful balloon!!! without a Parachute!!!
May 29, 2013 10:00PM
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Nothing like fueling the next big bubble with that cheap money!   

 

Right now in my area they are building everything they can while the rate stays low.    The new Exxon center project has over 15 crane going at it.   As you drive down another freeway we have 8 large buildings going up.  Each must be 12 floors or more.   Then they are building warehouses left and right.  We just had five new hospitals built within the last five years and now they say another one is coming soon.    

 

What I would like to know is where are all of these people going to come from in order to run and work in these places?   I thought they over built in the 80s and by the looks of this that was nothing.  Pretty scary if you ask me.  This means that a lot of construction workers are going to be without a job once these project finish and the rate goes back up. 

 

 

May 29, 2013 10:59PM
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Unfortunately, it is very clear that the stock market is not a reflecftion of the real economy.

While the recovery is there, it is slow and it is not creating the same type of jobs that existed pre 2008.

75% of the new created jobs are $35k orless per year, they are paying lower than the average salary in the US (around $49k).

At the current level, the market is grossly overvalued, and the indexes should be around 20% lower than where they are today.

We have a combination of companies hoarding cash and hiring and investing an absolute minumum and counting on diminishing productivity gains, and a market artificially maintained high with massive fcantral bank subsidies (QE3 in the US and other incentive accross the world).

Adding to the issue is a complete political gridlock in the US where nothing is happening except political gamesmanship, sequestration and other short term ridiculosities, a slowing economy in China and several large countries in Europe that are back into a recession (I doubth they ever went out of it to begin with).

This is not sustainable and will come to an end. We do not know when but we will experience a massive correction that will bring the markets back to reality.

 

May 29, 2013 10:27PM
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A wake up call indeed. Everybody knows that as soon as the FED stops pumping money into Wall Street, this illusion of a recovery will go off a cliff that will make 1929, 2009, and the Great Depression look like a sunny day at the beach.

 

Maybe now Wall Street is starting to catch on. The bond market sure seems to be. Maybe Wall Street will do something about rescuing this economy, like creating jobs. Wait, can Wall Street create jobs? No, that's Ben Bernanke's job. Wall Street does nothing except create fake wealth and very real crashes. Wall Street creates nothing. Wall Street manufactures nothing, except maybe dissent.

 

This market is so manipulated. If Wall Street is so concerned about interest rates, why doesn't it just control them like they have controlled everything else?

May 29, 2013 9:15PM
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Nothing like the prospect of cheap (newly created) money getting the party started.
May 30, 2013 3:47AM
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Everyone is concerned about rates, indexes, wealth, Obamacare, jobs, wars, etc. Please don't forget that our world is not spinning out of control. We still, and always will, have God in control of all these things. Jesus rules and He rules well. Turn to Him in faith and with confidence. All will be well with you financially and well with your soul. Praise God from whom all blessings flow!!
May 30, 2013 2:20AM
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Stocks are a bubble! Media always finds a reason for the action. Google for HAVE WE SEEN THE BOTTOM IN STOCK MARKET to understand the danger in stocks. Entire population is in debt. Debt to GDP ratio is at record highs. We are at ultra low interest rates and FED is running out of options. Next crash will be very hard to prevent. Get ready for the greater depression!
May 29, 2013 11:38PM
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Seems like people have not learned the lessons of investing in the stock market.  This is the playground of the rich.  If you cannot afford to lose the money, then stay out of the stock market.
May 30, 2013 2:09AM
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This is all hot air pushed up with electronic money. Nothing but 0's and 1's. We need to get back to the gold standard.

May 30, 2013 1:26AM
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I'm still trying to figure out how they figure job growth, people all over the US out of work, no more unemployment, jobs are nowhere to be found and our incompetent government talks about growth of the economy.  AMAZING!
 Obama will never let the market fail he has too many good ole boys working there and the ones who caused the stock market problems to begin with are now working for Obama.  Yea houses are selling, to investors.  The average taxpayer can't afford a house even in this market and even if they have the down payment the banks won't talk to them.  Got to love a government that is more interested in FU(KING the taxpayer than fixing the country.
May 30, 2013 7:00AM
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It will be a sad day indeed when the insiders pull the rug out,once again.  Make sure you have a seat when the music stops..
May 30, 2013 6:59AM
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"that's how the central bankers of the world are playing the markets"

 

Yes, they are "playing" the markets. At least they're admitting it now, which leaves us all with one dilemma. How do you beat a "player" in the market who can print all the money they need to "play" with. It's like allowing a gambler to keep doubling down on their bet at a table without limits until they finally draw a winning hand. I'm sure we all wish we could "play" by those rules. The problem is, once we accept it even for one "player", it's no longer a market.

May 29, 2013 10:48PM
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Rates are going to go up but it will be really slow at first and that hasn't even occurred yet just a bunch of early birds jumping the gun. But the sky's falling and the wolf's at the door are good stories.
May 30, 2013 8:05AM
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The headline is kind of premature.
May 30, 2013 6:35AM
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The market has given up 30% of our gains this year in a few days over nothing but rumors and quessing!! Idiots at play!!! Nothing news worthy really even happenned!
May 30, 2013 9:10AM
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Funny how we found out that some of the Spending Cuts, never took place. Now if this shell game of none cuts are across the board, we still don't know the real effects of the Gov't sequesters.

The Markets continually have avoided a massive dive due to premature shorts and Global Feds funding Stocks purchases. Pull that away, the Markets drop like a brick.

Eventually the Global FEDS will lose Control, next stop, Global Depression.

May 29, 2013 10:46PM
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Conservatives in banking threatening the President. Old news.

Conservatives got us into this mess, into Iraq, shipping jobs overseas et al.

Fear and involuntary servitude are their tools.

Imagine, they told us Wall Street bonuses had to be made or they would lose their good people.....to where?

Workers are stressed and most upper management is reaping (more like raping) the rewards.

Median income stagnant for 12 years, slightly higher under Obama.

Republicans want the Notch Babies on Social Security to die rather than pay them properly.

Republicans are the financial crisis in every boardroom.

These people invaded Iraq, the worst debacle in American History on a scale with the First Crusade.

The rich are buying congress and getting super wealthy on the backs of everyday Americans and the fools are loving it.

 

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