/perspectives/weekly-viewpoint/the-fed-guessing-game-will-likely-continue

The Fed Guessing Game Will Likely Continue

The major market indices finished the week moderately higher as investors shrugged off fears over the pace of global economic growth and uncertainty surrounding the timing of Fed lift-off.

October 05, 2015    |    By Mike Schwager

Performance for Week Ending 10/5/15:

The Dow Jones Industrial Average (Dow) rose 0.97%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 0.74%, the Standard & Poor’s 500 Index (S&P 500) gained 1.04% and the Nasdaq Composite Index (NASDAQ) tacked on 0.45%. Sector breadth was positive as 8 of the 10 S&P sector groups finishing lower. The Energy sector (+2.81%) was the best performing while Telecom (-1.06%) was the worst.

Index* Closing Price 10/2/2015 Percentage Change for Week Ending 10/2/2015 Year-to-Date Percentage Change Through 10/2/2015

Dow

16472.37

+0.97%

-7.58%

Wilshire 5000

20167.81

+0.74%

-5.27%

S&P 500

1951.36

+1.04%

-5.22%

NASDAQ

4707.77

+0.45%

-0.60%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 9/28/15 – 10/2/15

The major market indices finished the week moderately higher as investors shrugged off fears over the pace of global economic growth and uncertainty surrounding the timing of Fed lift-off.

On Friday the Labor Department reported that nonfarm payrolls rose by a much weaker than expected 142K during September, well short of the 201K forecast. The prior month’s data (which was widely expected to be revised higher) was lowered to 136K from the initial estimate of 173K. The unemployment rate held steady at 5.1%. Wage growth also disappointed by coming in unchanged (0.0%) during the month and dipping to +2.2% (from 2.4% last month) on a year/year basis. If anything, the report complicates the handicapping over whether the Fed will tighten policy before year-end but certainly validates the Fed’s decision to refrain from making a move at its last meeting. While the report puts a damper on the urgency for the Fed to tighten at the October meeting, a move in December is not off the table. On Thursday, San Francisco Fed President John Williams said that a nonfarm payroll report “above 100,000, or 150,000, would be good to me.” On Friday following the report, Boston Fed Chief Eric Rosengren said he still expects the Fed to raise rates by year end.

Away from the payroll data, several other pieces of economic data reported during the week also fell short of expectations. This in turn seemed to elevate worries over the potential for a “spillover” effect from global economic weakness while at the same time fanning the debate over the timing of Fed lift-off. While the recent “soft patch” in US economic data will likely prove temporary, it could take a couple months for the data to firm.

If you accept the concept that the reaction to the news is more important than the actual news, then the market has been telling us that it is ready for lift-off to commence. This was very evident following the inaction by the Fed at the most recent FOMC meeting which led to a sharp market sell-off. A week later when Fed Chair Yellen suggested that rates would be raised by year-end, the market reacted favorable. In all, it seems like investors wants the Fed to rip away the Band-Aid, while ensuring that the path higher will be very gradual – stay tuned.

The Week Ahead
The data calendar will be relatively light in the coming week with the focus on the ISM-Nonmanufacturing (services) report and the release of the FOMC minutes from the September meeting. On the earnings front, this week will be the “calm before the storm” as investors gear up for the deluge of Q3 earnings reports that will be released during the following few weeks. Fed heads will remain in the spotlight with over half a dozen appearances slotted 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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