Fed drops ‘Patient’ but remains Dovish

The Dow Jones Industrial Average (Dow) added 2.13%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 2.67%, the Standard & Poor’s 500® Index (S&P 500) finished up 2.66% and the NASDAQ Composite Index (NASDAQ) tacked on 3.17%.

March 23, 2015    |    By Mike Schwager

Performance for Week Ending 3/20/2015:

The Dow Jones Industrial Average (Dow) added 2.13%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 2.67%, the Standard & Poor’s 500® Index (S&P 500) finished up 2.66% and the NASDAQ Composite Index (NASDAQ) tacked on 3.17%. Sector breadth was positive with 9 of the 10 S&P sector groups finishing higher. The Healthcare sector (+4.52%) led the way higher followed by Utilities (+4.21%) and Energy (+3.38%).

Index* Closing Price 3/20/2015 Percentage Change for Week Ending 3/20/2015 Year-to-Date Percentage Change Through 3/20/2015





Wilshire 5000




S&P 500








*See below for Index Definitions

MARKET OBSERVATIONS: 3/16/15-3/20/2015

The major market indices finished the week broadly higher as investors took advantage of the selling pressure over the past few weeks to add equity exposure to their portfolios.  A more “dovish” than expected tone from the Federal Reserve (Fed), a brightening outlook for Europe and a rebound in oil prices (+2.0% w/w) added to the positive sentiment.

FOMC Meeting:
As widely expected, the Federal Open Market Committee (FOMC) decided to drop "patient" from its forward guidance and acknowledged the recent soft-patch in the U.S. economic data. It also explicitly noted that a hike at the upcoming April meeting was unlikely, while stating that the Committee will hike "when it has seen further improvement in the labor market and is 'reasonably confident' that inflation will move back to its 2% objective over the medium term." Changes to the economic outlook were generally dovish; with the Fed saying that growth has "moderated somewhat" versus the last statement that stated the economy was growing at a "solid pace." The Committee also noted that "export growth weakened" (a nod to the rapidly appreciating dollar). The median projections for the Fed funds rate (the Fed’s main policy lever) were lowered suggesting a more modest path of hikes. For year-end 2015, the Fed funds rate is now projected to rise to 0.625% (from prior median projection of 1.125%). 

The FOMC also released a new Summary of Economic Projections with officials trimming their forecast for economic growth in the coming years. In 2015, they now expect economic output to expand by 2.3% - 2.7%, a downgrade from their December estimate of 2.6% - 3.0%. The Fed also shaved its estimates of inflation. In 2015, the Fed projects inflation of 0.6%-0.8% percent, rising to 1.7%-1.9% in 2016, and not nearing its targeted goal of 2% until 2017. The lowered inflation expectations seem to be another indication that the Fed is not likely to move aggressively to raise rates after its initial move. The mid-point of the central tendency of the unemployment rate fell to 5.1% (from 5.25%) for the end of 2015.

Investor Sentiment Stuck in Neutral:
The American Association of Individual Investors (AAII) reported last week that Bullish sentiment in the most recent period fell to 27.2% (lowest since April 2013) while Bearish sentiment came in at 31.5%. Interestingly, Neutral sentiment has been moving higher over the past few weeks and currently stands at 41.4% - the highest since last May. The surge in Neutral sentiment suggests a high level of uncertainty in the market place as investors ponder Fed policy, the outlook for the global economy, current valuation levels, and concerns over whether companies will be able to deliver sustainable earnings growth. This also likely explains why the markets have more or less been stuck in a “holding pattern” since the start of the year.

The Week Ahead:
Fed Heads will be out in full force during the coming week with 9 appearances on the calendar. Fed officials will likely try to refine the message and add more clarity following last week’s FOMC meeting. The key speeches will come from Vice Chair Stanley Fischer on Monday followed by an update on monetary policy from Fed Chair Yellen on Friday. The economic calendar will also be closely watched with a particular emphasis on inflation (consumer price index), housing (existing home sales, new home sales), and manufacturing (Markit Manufacturing PMI).  Other reports of interest include durable goods orders and the final revision to the fourth quarter GDP. The earnings calendar will remain light with fewer than 10 members of the S&P 500 scheduled to report earnings.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor’s 500® Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

American Association of Individual Investors – AAII is a non-profit, membership-driven investor education organization. The American Association of Individual Investors (AAII) was founded in 1978 by James Cloonan. The AAII's mission is to teach individuals to manage their own portfolios and to beat average S&P 500 returns, while taking on lower-than-average levels of risk. AAII also publishes the results of its weekly investor confidence surveys that are based on its members' feelings about where the stock market is headed.

Consumer Price Index – CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

Past performance is no guarantee of future results. Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.


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