/perspectives/weekly-viewpoint/fed-up-–-will-they-or-won’t-they

Fed Up – Will They or Won’t They

Markets finished the holiday shortened week on the upside despite ongoing global growth concerns and looming uncertainty over Fed policy. The Federal Open Market Committee (FOMC) is set to gather this week (Wednesday and Thursday) and decide on whether to lift rates for the first time in almost a decade.

September 14, 2015    |    By Mike Schwager

Performance for Week Ending 9/11/15:

The Dow Jones Industrial Average (Dow) rose 2.05%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.91%, the Standard & Poor’s 500 Index (S&P 500) gained 2.07% and the Nasdaq Composite Index (NASDAQ) tacked on 2.96%. Sector breadth was positive with 9 of the 10 S&P sector groups finishing higher. The Technology sector (+3.13%) led the way higher followed by Healthcare (+2.80%) and Industrials (+2.30%).

Index* Closing Price 9/11/2015 Percentage Change for Week Ending 9/11/2015 Year-to-Date Percentage Change Through 9/11/2015

Dow

16433.09

+2.05%

-7.80%

Wilshire 5000

20349.80

+1.91%

-4.51%

S&P 500

1961.05

+2.07%

-4.75%

NASDAQ

4822.34

+2.96%

+1.82%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 9/7/15 – 9/11/15

Markets finished the holiday shortened week on the upside despite ongoing global growth concerns and looming uncertainty over Fed policy. The Federal Open Market Committee (FOMC) is set to gather this week (Wednesday and Thursday) and decide on whether to lift rates for the first time in almost a decade. The question of whether the September meeting is a go or not has been a considerable headwind to the markets over the past several weeks and investors are certainly looking for clarity on this front.

The Fed, however, is in a difficult position with committee members split on whether to hold steady or initiate the lift-off process. There are good arguments on both sides of the aisle. Labor market conditions continue to improve, wage growth is beginning to build, and the economy seems to be picking up steam. On the flipside, inflation remains well below their 2% target, global growth has been showing signs of slowing and volatility in the financial markets remains elevated. Bottom-line: the decision will likely be a close call.

Investors have been “flying blind” in terms of Fed policy over the past week as a lack of major economic data and the traditional quiet period ahead of Fed meetings has left them with little new data/guidance. With that said, it almost seems we have reached the point where investors would like to get the initial rate hike behind them and receive clarity on the path higher. If the Fed were to hike at this week’s meeting, they will likely include a very dovish statement and could lower their forward rate projections (the so-called dot plot). In doing the latter, it would underscore that the path higher will be very gradual, which is ultimately more important than the initial move – stay tuned.

The Week Ahead
The focal point for the upcoming week will be the Federal Open Market Committee’s two-day meeting starting on Wednesday. The meeting statement and updated committee member forecasts will be released at 2:00ET on Thursday and be followed by a press conference with Chair Janet Yellen at 2:30ET. On the data front, all eyes will be on Tuesday’s release of the monthly retails sales data, which is expected to show a modest month over month advance. Other economic reports of interest include the August industrial production and capacity utilization data, the September Empire State manufacturing survey, July business inventories, the August Consumer Price Index (CPI), August housing starts and building permits and the September Philadelphia Federal Reserve’s manufacturing survey. The earnings calendar will remain in the background for a few more weeks as just three members of the S&P 500 are scheduled to report earnings during the week.


Definitions

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.

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 gua rantees 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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