Fed Holds the Line, For Now

The major market indices finished the week mostly lower as gains early in the week were outweighed by selling pressure following the conclusion of the two-day Federal Open Market Committee (FOMC) meeting.

September 21, 2015    |    By Mike Schwager

Performance for Week Ending 9/18/15:

The Dow Jones Industrial Average (Dow) fell 0.29%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.09%, the Standard & Poor’s 500 Index (S&P 500) declined by 0.15% and the Nasdaq Composite Index (NASDAQ) tacked on 0.10%. Sector breadth was neutral with 5 of the S&P sector groups finishing higher and 5 finishing lower. The Utilities sector (+2.47%) was the best performing while Materials (-1.59%) was the worst.

Index* Closing Price 9/18/2015 Percentage Change for Week Ending 9/18/2015 Year-to-Date Percentage Change Through 9/18/2015





Wilshire 5000




S&P 500








*See below for Index Definitions

MARKET OBSERVATIONS: 9/14/15 – 9/18/15

The major market indices finished the week mostly lower as gains early in the week were outweighed by selling pressure following the conclusion of the two-day Federal Open Market Committee (FOMC) meeting.

As expected, the FOMC held off from raising rates (although Chair Yellen indicated it was a close call) and lowered the forward rate projections (the so-called dot plot). While the tone of the after meeting communiqué was dovish, the Fed’s concern over recent global developments and the potential negative impact on growth seemed to have unnerved investors. Per the statement, “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” Nonetheless, a majority of Fed officials still believe the central bank will raise rates before year-end. In June, 15 of 17 officials said they expected to raise rates this year, now the number who expect to raise rates by at least a quarter percent this year slipped to 13.

While the outcome to the meeting was in line with what most were expecting (delayed hike, dovish statement, lower “dots”), it appears that many investors would have rather had the Fed rip away the band-aid and get the “rate monkey” off their backs. In addition, the fact that the Fed doesn’t think the economy can withstand a measly quarter point rate hike raised fears that the Fed may have deeper seated concerns. Remember the reaction to the news is always more telling than the actual news. The guessing game over when initial lift-off will occur will remain intact and could lead to increased volatility with each new economic data point or hiccup in global markets. While most economists have now circled the December meeting for initial lift-off, there also appears to be a growing cadre who expect the Fed to wait until Q1 of next year – stay tuned.

The committee did upgrade its current assessment of economic activity, likely reflecting the stronger pace of incoming data since the last update. Overall it described economic activity as expanding at a moderate pace. The FOMC stated that it sees a range of labor market indicators that suggest labor market slack continues to diminish. In addition, household spending and investment were also seen as having improved somewhat.

According to the Summary of Economic Projections, the path of policy as expressed by the median projection (dot-plot) for the fed funds rate fell by a quarter percent in each of 2015/16/17 (the new projections forecast the fed funds rate will stand at 0.375% for year end-2015, 1.375% at year end-2016, and 2.625% at year end-2017). The median longer run projection was also revised lower to 3.50% from 3.75%.

Economic Roundup:
Last week’s report on August retail sales suggested consumer spending remains resilient despite the recent volatility in the equity markets. Inflation continues to be subdued with the Labor Department reporting that Consumer Prices (CPI) during the month of August fell 0.1%, while the “core” rate, which excludes food and energy, rose 0.1%. On a year-over-year basis the headline CPI is up a muted 0.2%, while the “core” rate has gained 1.8%. On the housing front, the Commerce Department reported that housing starts during the month of August dipped modestly while building permits—which tend to be a leading indicator of future construction—posted a solid gain. Labor markets remain in good shape as weekly jobless claims fell to a two month low and have now been under 300K, a level typically associated with an improving job market, since early March.

The Week Ahead
The focal point for the upcoming week will be Thursday’s appearance by Fed Chair Janet Yellen who is scheduled to speak at the University of Massachusetts. Following last week’s FOMC meeting investors will be looking for more clarity on interest rate policy. Other Fed heads scheduled to make public appearances during the coming week are Atlanta president Dennis Lockhart, St. Louis president James Bullard and Kansas City president Esther George. On the data front, August existing home sales will be released on Monday. Wednesday brings the September manufacturing PMI report from Markit. August durable goods orders and August new home sales will be released on Thursday. Friday will feature the second revision to second-quarter GDP and the University of Michigan’s September consumer sentiment survey. The unofficial start to third quarter earnings season won’t come for a few more weeks; however, a dozen “early reports” are scheduled to release results during the upcoming week, including Dow-component Nike Inc.


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.

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.

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