Tapering the Federal Reserve

Greetings! ,

The news from the markets last week was dramatic, considering there is very little news. Eventually, the massive bond buying of the Federal Reserve will end. First, the Federal Reserve meeting had very little to say, except that things look like they are improving. Then, Mr. Bernanke had an open interview in which he said that the Federal Reserve will be tapering the buying of bonds.

This is the normal chain of events for a scared stock broker. First, sell everything and then ask questions later.

Once the questions start arising, we lean on our abilities to speak and listen more than any other set of skills. I purposefully paid little attention to the television after the wake of the news caused the markets to decline. The argument between the personalities jockeying for the most air time was over the definition of the word taper.

No company in the portfolio any of our clients are invested in will have its income statement, nor its return to investors, affected by a television personality's memory of her 8th grade English class. As much as your teacher may be smiling, the business of business continues in spite of the taper.

As the economic statistics that accompany every e-mail version of the newsletter show, things improve and are continuing to improve at an improving rate.

Finally, this market has gone a long time without any level of a meaningful correction. Celebrate this pull-back as a possible buying opportunity. And, to those of you in a Trend Following portfolio, you can take some solace that the model did move to cash before the correction. None of us knew what Bernanke would say, nor how the markets would react. Nor does anyone in this firm make investment decisions based off predictions. We invest off principles and a tried and true, time-tested investment philosophy.

Weekly Economic Update

FED OUTLINES END FOR STIMULUS, STOCKS SLIP

Last Wednesday, Federal Reserve Chairman Ben Bernanke shared the central bank's vision for winding down its current aggressive easing effort - the potential tapering of QE3 by late 2013, and the end of the program by mid-2014 if economic conditions permit. Wall Street reacted abruptly - the Dow sank more than 550 points in less than two trading sessions. In the near term, the Fed will keep buying $85 billion in bonds per month and maintain interest rates at near-zero levels. (1,2)

INFLATION PRESSURE MINIMAL IN MAY

The 0.1% rise in the Consumer Price Index last month put yearly inflation at 1.4%, well under the Fed's 2.0% target. Energy prices rose 0.4% in May but fell 1.0% in a year; medical costs declined 0.1% for May, the first monthly decrease since 1975.(3)

EXISTING HOME SALES IMPROVE

The National Association of Realtors reported a 4.2% jump in residential resales for May, with the annualized sales pace topping the 5 million mark for the first time in 3½ years. From May 2012 to May 2013, the median price of an existing home rose 15.4% to $208,000 as the number of listings on the market shrank 10.1%.(4)

LEADING INDICATORS EDGE NORTH 0.1% IN MAY

Slight improvement was seen in the Conference Board's latest barometer of the economic outlook for the next 3-6 months, but economists surveyed by Bloomberg thought it would rise 0.2%. April's gain was revised up to 0.8%.(4)

A WILD RIDE FOR STOCKS

Volatility was rampant last week on Wall Street, and so were losses. In five days, the S&P 500 slipped 2.11% to 1,592.43, the Dow lost 1.80% to 14,799.40 and the NASDAQ fell 1.94% to 3,357.25.(5)

Market Summary

% ChangeY-T-D1 Yr Chg5-Year Avg
DJIA +12.94 +17.70 +4.99
NASDAQ +11.19 +17.42 +7.91
S&P 500 +11.66 +20.14 +4.17

(Source: cnbc.com, usatoday.com, bigcharts.com, treasury.gov, 06/07/13). Past performance is no guarantee of future results. Indices are unmanaged, and investors cannot invest in them directly.

Create a beautiful week!

karl signature

Karl Frank, MBA, MSF
Certified Financial Planner (R)
A & I Financial Services LLC
303.690.5070

Citations:

  1. cnbc.com/id/100831276 [6/20/13]
  2. foxbusiness.com/markets/2013/06/19/wall-street-pummeled-amid-fed-woes/ [6/19/13]
  3. online.wsj.com/article/SB10001424127887323566804578553151902340728.html [6/18/13]
  4. bloomberg.com/news/2013-6-20/sales-of-previously-owned-u-s-homes-rise-more-than-forecast.html [6/20/13]
  5. cnbc.com/id/100834381 [6/21/13]
  6. usatoday.com/money/markets/overview/ [6/21/13]
  7. bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F21%2F12&x=0&y=0 [6/21/13]
  8. bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F21%2F12&x=0&y=0 [6/21/13]
  9. bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F21%2F12&x=0&y=0 [6/21/13]
  10. bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F20%2F08&x=0&y=0 [6/21/13]
  11. bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F20%2F08&x=0&y=0 [6/21/13]
  12. bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F20%2F08&x=0&y=0 [6/21/13]
  13. bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F20%2F03&x=0&y=0 [6/21/13]
  14. bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F20%2F03&x=0&y=0 [6/21/13]
  15. bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F20%2F03&x=0&y=0 [6/21/13]
  16. treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/21/13]
  17. treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/21/13]

Securities offered through Geneos Wealth Management, Inc., member FINRA/SIPC. Investment advisory services offered through A&I Financial Services LLC, registered investment advisor.

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