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August 26, 2013 - Markets Mixed Over Tapering Fears

August 26, 2013
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Markets ended the week mixed, showing an upward trend after the previous week's losses, but still subject to investor nerves. For the week, the S&P 500 gained 0.46%, the Dow lost 0.47%, and the Nasdaq gained 1.53%.[1]

Uncertainty around the Fed's tapering schedule drove much of market activity last week. While many Fed speakers have suggested that tapering may begin after the September FOMC meeting, they have cautioned that the Fed's plans remain data dependent. Mixed housing data, unconvincing jobs growth, and low inflation may argue for a delay in tapering, but policy direction is under heavy debate within the Fed and it's hard to know which date the Fed will choose.[2] What we do know, based on FOMC minutes and Fed speeches, is that unwinding will be gradual and policy changes will be slow, giving markets time to adapt to the new environment. As the days tick down to the September 17 FOMC meeting, we can expect additional market volatility. However, investors have had significant time to digest the eventual end of quantitative easing, and we can hope that any negative market reactions will be short-lived.

On the jobs front, though weekly claims edged upward, the fewest workers in five years applied for unemployment benefits for the month ending August 17, indicating that the labor market slowly continues to improve. However, regional data shows a mixed picture, with the jobless rate still climbing in 28 states and major employers announcing job cuts.[3]  Fed watchers have indicated that the August jobs report will be a major factor in any decisions made at the September FOMC meeting.[4] 

A technical glitch caused the Nasdaq to shut down for three hours on Thursday, halting trading in thousands of stocks. The shutdown was the longest in recent history, and exchange officials are investigating the origins of the technical fault. Despite rattled trading desks, investors shrugged off the shutdown and the Nasdaq still closed up for the week.[5]

Looking at the week ahead, investors will be closely watching the release of important housing, consumer, and manufacturing reports as well as additional speeches by the St. Louis Fed President James Bullard. Fed watchers will also be analyzing several reports as they wait for the much-anticipated August jobs report, which will be released on September 6. The jobs plentiful/jobs hard-to-get component of Tuesday's consumer confidence report and the employment component of the Chicago PMI will hopefully give clues about general job trends this month.[6]

ECONOMIC CALENDAR:
Monday: Durable Goods Orders, Dallas Fed Mfg. Survey
Tuesday: S&P Case-Shiller HPI, Consumer Confidence
Wednesday: Pending Home Sales Index, EIA Petroleum Status Report
Thursday: GDP, Jobless Claims
Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. 

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. 

The Nasdaq is a computerized system that facilitates trading and provides price quotations on some 5,000 of the more actively traded over-the-counter stock.


[1]  http://briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-august-19-2013.htm

[2]  http://www.reuters.com/article/2013/08/24/us-usa-fed-lockhart-idUSBRE97M0H720130824

[3]  http://www.bloomberg.com/news/2013-08-22/jobless-claims-in-u-s-decrease-to-five-year-low-over-past-month.html

[4]  http://www.businessinsider.com/fed-tapering-depends-on-august-jobs-data-2013-8

[5]  http://www.reuters.com/article/2013/08/22/us-nasdaq-halt-tapec-idUSBRE97L0V420130822

[6]  http://www.businessinsider.com/three-datapoints-to-watch-this-week-as-we-wait-for-the-crucial-august-jobs-report-2013-8