Stimulus Junkies Fearing Withdrawal Symptoms

The Dow Jones Industrial Average (Dow) fell 1.17%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.95%, the Standard & Poor's 500 Index (S&P 500) declined by 1.01% and the NASDAQ Composite Index (NASDAQ) shed ...

June 17, 2013    |    By Mike Schwager

Performance for Week Ending 6/14/13:

The Dow Jones Industrial Average (Dow) fell 1.17%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.95%, the Standard & Poor’s 500 Index (S&P 500) declined by 1.01% and the NASDAQ Composite Index (NASDAQ) shed 1.32%. Sector breadth was negative as all 10 of the S&P sector groups finished lower. The Financials (-2.09%) was the worst performer followed by Energy (-1.67%) and Technology (-1.53%).

Index* Closing Price 6/14/2013 Percentage Change for Week Ending 6/14/2013 Year-to-Date Percentage Change Through 6/14/2013





Wilshire 5000




S&P 500








*See below for Index Definitions

MARKET OBSERVATIONS: 6/10/13 - 6/14/13

The major market indices finished lower for the third time in the past four weeks as investors continue to fret over the future of the Federal Reserve’s (FED) bond buying program. While it seems the market is starting to come to grips with the notion that bond buying activity will be tapered at some point, the uncertainty is being driven by the question of when and by how much.   While the decision will ultimately be data dependent, a recent survey by Bloomberg showed that economist expect the FED to trim their quantitative easing program to $65 billion a month from $85 billion per month at the Oct. 29-30 Federal Open Market Committee (FOMC) meeting.

Investors will look to get some clarity on the situation at the conclusion of this week’s FOMC meeting. Last Thursday, noted-FED watcher John Hilsenrath of the Wall Street Journal published an article that appeared to be a preview of the upcoming meeting. The article seemed to suggest the FOMC will take on a more “dovish” tone than what is currently priced into the market.   With all the recent chatter about tapering, bond yields (and mortgage rates) have started to backup and there may be growing nervousness within the FED that the rise in rates could choke-off the still fragile recovery.   Hilsenrath opined that FED Chairman Bernanke is likely to reemphasize that he expects a “considerable” amount of time to pass between ending the bond-buying program and raising short-term rates. Investors tend to pay attention to Hilsenrath as he is known to be the FED’s preferred media mouthpiece and has telegraphed almost every action the FED has made over the last several years.   Bernanke’s press conference is scheduled for Wednesday at 2:30ET – stay tuned.

Economic Roundup
With the market in the early stages of what, I believe, appears to be a transitioning from a liquidity driven market to one that focuses more on fundamentals,   the strength (or weakness) of incoming data will likely become a key catalyst of near term market performance.

Last week’s economic calendar was relatively quiet; however the few reports that were reported were generally positive. The Commerce Department reported that Retail Sales during the month of May rose by a better than expected 0.6%.   The report suggested that improving economic and labor conditions coupled with higher housing and equity prices are encouraging consumers to open their wallets.   Sales excluding Autos rose by 0.3% - on target with economists’ expectations.   The retail sales report tends to carry a lot of weight as consumer spending accounts for over 70% of the US economy.   Elsewhere, the Labor Department reported that initial jobless claims during the week ended June 8 fell 12K to 334K. Results were solidly better than the 346K expected by economists.   On Friday, the University of Michigan’s consumer confidence index fell short of economists’ expectations; however, the index still remained just off the highest level in almost six years.

Technicals were once again in play last week as the S&P 500 retested its 50-day moving average (1613 as of Friday) for the second time in as many weeks. The 50-day is closely watched by the trading community and the successful “test” suggests underlying demand at this critical support level. Since the start of the year the ‘50’ has been tested several times and in each case the support level acted as short term catalyst to push stocks higher.  

The broader trend of the market also remains supportive as does the underlying leadership.   Since mid-April cyclical sectors (those more levered to the economy) have been outperforming defensive sectors on a relative basis. In addition, small-cap stocks have been outperforming their large-cap brethren suggesting investors are getting more comfortable with taking on risk.

As mentioned last week, technical analysis is the study of price trends and patterns in the market place.    While many asset managers shrug off the use of technical analysis and consider the practice the equivalent of “market voodoo,” traders tend to use technical’s to help shape and define risk. Remember if enough eyeballs are focused on something then that it becomes important.

The Week Ahead
The focal point of the upcoming week will be the FOMC meeting scheduled for Tuesday and Wednesday.   At the conclusion of Wednesday’s meeting FED Chairman Bernanke will host a press conference to update investors on the current state of the economy.   While no changes in the FED policy are expected to emerge, investors will be looking for clarity on future of the FED’s bond buying activity.   The economic calendar picks up this week with housing and regional manufacturing data in the spotlight.   Other reports of interest include initial jobless claims and the leading economic indicators report (both out on Thursday).    Other events of interest will be the kick-off of the G-8 meeting on Monday. Group of Eight leaders are expected to debate whether austerity is aiding or harming the global economy as well as tackling key topics like tax evasion and boosting global trade. Japanese Prime Minister Shinzo Abe’s economic policies and the Syrian civil war are also likely to be among other issues discussed.


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.

The S&P/TSX Composite Index is a capitalization-weighted index designed to measure market activity of stocks listed on the Toronto Stock Exchange (TSX). The index was developed with a base level of 1000 as of 1975.

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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