Dow, S&P retreat for second day amid investor caution

NEW YORK - U.S. stocks fell on Tuesday, with the Dow and the S&P 500 retreating further from milestone levels, led by a slide in Best Buy after a disappointing outlook.

Trading remained in a tight range with U.S. Federal Reserve Chairman Ben Bernanke scheduled to speak in Washington at 7 p.m. EST. Charles Evans, the president of the Chicago Federal Reserve Bank, said earlier on Tuesday that the central bank may need to wait until next year, possibly until March, before beginning to wind down its massive bond-purchase program.

Cautious forecasts from Best Buy and Campbell Soup Co gave investors a reason to sell some stocks. Best Buy shares slid 11 percent to close at $38.78, while Campbell Soup fell 6.2 percent to $39.21.

The Dow briefly rose above 16,000 but failed to close above that level for the second day. The S&P 500 retreated further from the 1,800 level it hit on Monday. Despite the two-day decline, the S&P 500 is still up about 25 percent for the year. The benchmark index is on track for its biggest yearly gain since 2003.

"The last couple of days have been a bit choppy, signaling a top here, but the market is extremely resilient to any bad news and funds continue to flow into stocks and risky assets from bonds and fixed income," said Tim Ghriskey, who helps manage more than $1.5 billion as chief investment officer of Solaris Asset Management LLC.

The Dow Jones industrial average slipped 8.99 points, or 0.06 percent, to end at 15,967.03. The Standard & Poor's 500 Index declined 3.66 points, or 0.20 percent, to finish at 1,787.87. The Nasdaq Composite Index dropped 17.51 points, or 0.44 percent, to close at 3,931.55.

Best Buy is cutting prices for the holiday season to thwart fierce competition from Wal-Mart and other discount and online rivals, a move that it warns will hurt margins for the current quarter.

Campbell Soup, the world's largest soup maker, also cut its full-year profit forecast after a drop in demand for its soups and drinks resulted in first-quarter earnings that fell far short of analysts' estimates.

But a recovery in the U.S. housing market helped Home Depot exceed profit and sales estimates for the third quarter, prompting the No. 1 home improvement chain to raise its fiscal-year outlook for the third time this year.

The stock gained 0.9 percent to end at $80.38 after hitting a lifetime high of $82.25.

The S&P 500 has more stocks up so far this year than in almost any other year since 1980, according to Frost Investment Advisors.

"221 stocks in the index are up more than 30 percent. In fact, it has been over 530 trading days now since the stock market has seen the 10 percent correction that many predicted over the last 529 or so days," Frost Investment said in a note to clients.

On Wednesday, minutes from the Fed's October meeting are scheduled to be released. At that meeting, the Fed decided to stick with its bond-buying program. Investors have been bracing for a pullback from the stimulus program since the summer.

"I'd say there's a very low probability the Fed does anything between now and the end of the year," said Dan Veru, chief investment officer of Palisade Capital Management, which has $4.5 billion in assets and is based in Fort Lee, New Jersey.

Tesla Motors shares rose 3.7 percent to $126.09 in a volatile session. U.S. traffic safety regulators launched an investigation into the luxury electric sports car maker's Model S sedan after three car fires in six weeks.

About 5.8 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, slightly below the five-day average closing volume of about 6.1 billion, according to BATS exchange data.

On the New York Stock Exchange, decliners beat advancers by a ratio of slightly more than 2 to 1. On the Nasdaq, nearly two stocks fell for every one that rose.

source: interaksyon.com

Bernanke blasted after surprise no-taper decision

WASHINGTON - Economists and market analysts on Thursday blasted Federal Reserve chief Ben Bernanke after the Fed stunned markets with its unexpected decision to not cut its stimulus.

Bernanke came under fire for having stoked nearly unanimous expectations that the Fed would announce the "taper" of its $85 billion a month bond-buying program after its policy meeting Wednesday.

The decision cost investors who bet on a stimulus cutback hugely, though benefiting many with long positions in global stocks.

Many blamed Bernanke and fellow members of the Federal Open Market Committee (FOMC) for having since May repeatedly suggested a September taper of the quantitative easing (QE) program.

University of Michigan economist Justin Wolfers called the surprise "the result of a needless miscommunication.

"This whole taper debate is one that should never have happened," he wrote.

After Bernanke first spoke of a stimulus cut in May and June, "taper-talk came to dominate the financial headlines, and a monetary meme was quickly born. The result... was that markets over-reacted," he said.

"Despite Bernanke's effort yesterday in the press conference to paint the FOMC decision as entirely consistent with earlier communication from the FOMC, it was not," said Chris Low at FTN Financial.

"The Fed may have done the right thing for the economy... but the Fed's communications credibility is shredded."

Speaking after the FOMC announced its decision, Bernanke argued that all along he has stressed that any decision to taper had to be backed by data showing steady gains in the economy, especially "continued improvements in the labor market."

"I think there's no alternative in making monetary policy but to communicate as clearly as possible, and that's what we try to do," he said.

But Bernanke had not just pointed to a taper beginning late this year. The explicit details he provided fed the consensus that cuts were imminent.

He said that QE should be wound up when unemployment falls to 7 percent, with the expectation that that will happen by mid-2014.

FOMC members repeated those details in speeches, some emphasizing "as early as September."

When the unemployment rate fell in August to 7.3 percent, not far from the threshold and with no caution from the Fed, the die was cast, as far as markets were concerned.

But the result was that interest rates shot up in expectation of tighter money conditions, apparently impacting economic activity, including home buying, something that Bernanke referred to when explaining the non-taper decision.

"The irony to all of this is that the backup in interest rates was due mainly to the chairman's May 22 comments," said economist Joseph LaVorgna of Deutsche Bank.

He questioned whether financial conditions have really tightened, but added: "If the Fed believes they did tighten, why did not the chairman or another Fed governor attempt to communicate this at some point" to prevent markets from getting ahead of policy?

"We are worried that when the time comes to taper, and someday tighten, the Fed will not have the courage to follow-through on its actions because market expectations will likely be well ahead of where the Fed is. "

Many analysts still praised the decision itself, saying persistent weaknesses in the economy, and with a turbulent battle over government budgeting and debt ahead, require continued stimulus.

"The economy has not pulled away from its near two percent trend growth rate of recent years," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

And most still expect the Fed to embark on trimming the bond buys in the near future.

"For now, we maintain the view that the Fed will taper in December. But much depends on developments in Washington and in the housing market," said Paul Edelstein, IHS Global Insight

But at the same time, they said markets will doubt more than before anything they hear from Fed policy makers.

"It will be hard now to take seriously Fed officials' speeches and testimonies," said Shepherdson.

"Yesterday's decision confirms that the real modus operandi of the FOMC is to base its view on the state of the economy on the latest backward-looking data."

source: interaksyon.com

Is Fed ready to begin the great taper? Markets say yes

WASHINGTON, September 15, 2013 (AFP) - Is the Federal Reserve ready to put the Great Recession behind it? Is the US economy prepared for it?

The markets think so, as the Fed's policy board prepares to meet on Tuesday and Wednesday to decide a momentous step: whether they begin cutting back its stimulus for the economy, $85 billion a month pumped in via bond purchases to fuel the engine.

Four months after Fed Chairman Ben Bernanke first suggested that the central bank could start to taper its stimulus program, called quantitative easing (QE), sometime this year, most expectations are that the Federal Open Market Committee (FOMC) will take the step.

And with Bernanke expected to step down at the end of January, many believe he needs to set the policy path now, rather than having it delayed for months until his successor settles into the job.

The prospect of less easy money from the Fed has already taken US stocks down from their all-time highs, and sent market interest rates climbing sharply. The yield on the benchmark 10-year Treasury bond has nearly doubled in four months, from 1.6 percent to 3.0 percent.

The anticipation has also wreaked havoc in emerging markets.

A pullout of foreign capital, driven by falling returns, turned into a flood outward when US bond yields rose. That sent authorities in countries like Indonesia, India and Turkey into a panic over their plummeting currencies.

And although that has drawn warnings to the Fed from around the world to not act too precipitously, analysts say the only question surrounding the taper is when, and how fast.

In his effort to remove any obscurity from Fed communications -- to make sure that everyone understands clearly what FOMC members are thinking -- Bernanke has set the course firmly to taper.

On May 22 he told a congressional hearing that the Fed could begin cutting the QE bond purchases "in the next few meetings" of the FOMC, while adding the condition, "If we see continued improvement, and we have confidence that that is going to be sustained."

Three weeks later he was more precise, saying the cutback could start "later this year" and be completely wound up by mid-2014.

But by July he was more cautious, voicing a worry over how government spending cuts might slow the economy through the rest of the year.

The minutes to the end-July FOMC meeting echoed that shift. Several members wanted to go ahead with the taper, while others counseled "the importance of being patient".

Economic data has backed both views. At the end of August the official estimate of US economic growth in the second quarter was raised to a solid 2.5 percent.

The August jobs report put the unemployment rate at 7.3 percent, compared with 8.1 percent a year earlier, and data on corporate and government layoffs has steadily improved.

But the report also showed a significant slowdown in new job generation for the June-August period. Gains in the unemployment rate were largely from the number of people dropping out of the jobs market altogether.

In addition, the rise in interest rates appears to have slowed the rebound of the property sector, and fresh retail sales data Friday suggested that, with the exception of buying new cars, US consumers were being very cautious about opening their wallets.

"Businesses aren't laying off workers -- the layoff rate is at a record low and initial unemployment insurance claims are trending down -- but they aren't hiring many, either," said Mark Zandi, chief economist at Moody's Analytics.

But as Zandi points out, the economy continues to heal, and the Fed's bond purchases -- aimed at holding down long-term interest rates -- have less impact as time passes.

Most analysts say there is not enough economic bad news for Bernanke to reverse course.

But the FOMC could cut its bond purchases by a small amount -- $5 to $20 billion out of the $85 billion total -- and then hold off on more cuts to see where the economy goes, analysts say.

Or it could put off the decision to one of the FOMC's two remaining meetings this year.

"The Fed will likely hold off on tapering at next week's meeting and move in December," said economists at IHS Global Insight in a report Friday, taking a minority view.

"The jobs market is simply too uncertain and there are risks on the horizon from Syria and congressional fiscal fights."

source: interaksyon.com

Fed bets big in new push to rescue US economy

WASHINGTON - The Federal Reserve launched another aggressive stimulus program on Thursday, saying it would pump $40 billion into the U.S. economy until it saw a sustained upturn in the weak jobs market.

The central bank's decision to tie its controversial bond buying directly to economic conditions was an unprecedented step that marked a big escalation in its efforts to drive U.S. unemployment lower. Stock prices jumped, while gold hit a six-month high as investors braced for higher inflation.

Unlike in its two previous bond-buying sprees, the Fed said it would only purchase mortgage-backed debt, hoping in part to unstick a housing sector that Fed Chairman Ben Bernanke called "a missing piston" in the U.S. recovery.

One top Republican charged that the move was a bid to help President Barack Obama ahead of November's closely contested presidential election. Republican nominee Mitt Romney's campaign said it confirmed the failure of Obama's policies.

Bernanke dismissed talk the Fed was taking sides, saying it acted solely because of the dire state of the U.S. labor market.

"The employment situation ... remains a grave concern," Bernanke told reporters. "While the economy appears to be on a path of moderate recovery, it isn't growing fast enough to make significant progress reducing the unemployment rate."

The economy created just 96,000 jobs last month, less than needed to keep up with population growth. While the unemployment rate edged down to 8.1 percent, it was only because many Americans gave up on the search for work.

By buying mortgage-linked debt, the Fed hopes to press mortgage rates lower, helping the housing market and also encouraging investors in MBS to switch into other assets, lowering their yields as well.

Those lower borrowing costs should spur more lending and foster faster economic growth, officials believe. U.S. growth cooled in the second quarter to a tepid 1.7 percent annual rate, and forecasters do not see the economy doing much better now.

In an additional move, the Fed said it was not likely to raise overnight interest rates from their current near-zero level until at least mid-2015. Previously, it had set such guidance at late 2014.

To underscore its resolve, it said it would pursue an easy monetary policy "for a considerable time" even after the economy strengthened.

"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement.

Asked repeatedly during a post-decision news conference to amplify on that pledge, Bernanke said the Fed wanted to see a convincing improvement in the economy that could deliver sustainable job creation and a gradual decline in unemployment.

"There's not a specific number we have in mind, but what we have seen in the last six months isn't it," he said.

U.S. stocks shot higher on the Fed's move, with the S&P 500 closing at its highest level since December 2007 and the Dow Jones industrial average adding more than 200 points.

Stephen Stanley, an economist at Pierpont Securities in Stamford, Connecticut, said that by tying its purchases to progress reducing U.S. unemployment, the Fed had "basically locked on the handcuffs and swallowed the key."

Pushing on a string?

Economists said the Fed could eventually buy more than $1 trillion in debt given the open-ended nature of its new policy. Capital Economics estimated purchases could top $1.4 trillion.

The plan fueled some nervousness in financial markets over the potential for inflation, even though the Fed would pull back on its buying if the economy strengthened.

Bernanke stated explicitly that pushing up prices was not the Fed's intention.

The price of gold, a traditional inflation safe haven, hit a six month high, while oil also gained on expectations investors would pile into riskier assets such as commodities and equities.

Prices for most U.S. Treasury debt rose, although the 30-year bond fell, reflecting both disappointment that government debt was not on the Fed's purchase list and inflation worries.

The decision comes in the face of widespread questions about the likely effectiveness of a further foray into unorthodox monetary policy, including from Romney. The Fed has already bought $2.3 trillion in U.S. government and housing-related debt it two rounds of so-called quantitative easing.

Those programs, dubbed QE1 and QE2, bought bonds closer to a pace around $100 billion per month.

Senator John Cornyn, head of the Senate Republican Campaign Committee, said the Fed appeared to be "trying to juice the economy" ahead of the November 6 election, while Lanhee Chen, policy director for the Romney campaign, argued that the Fed's decision pointed to a need for new policies from the White House.

"We should be creating wealth, not printing dollars," Chen said.

The White House, which scrupulously avoids commenting on Fed decisions, declined to be drawn into the debate, but other Democrats rallied to defense of Bernanke, who once served as an adviser to Republican President George W. Bush. It was Bush who first nominated Bernanke to the Fed.

"It is unfortunate that Republicans already have expressed disappointment in this action and are clearly upset that they were unable to intimidate the Fed into putting partisan politics ahead of national economic interests," said Democratic Representative Barney Frank.

The Fed also caused ripples aboard. Brazilian Finance Minister Guido Mantega said he would monitor the impact of the action on Brazil's real currency. Mantega had accused the Fed's earlier bond buying of unfairly weakening the U.S. dollar.

Brighter outlook

In its statement, the Fed said the fresh MBS purchases, which it will start on Friday, would come on top of its so-called Operation Twist program, in which it is selling short-term bonds to buy longer-term Treasury debt.

With its new MBS purchases, the Fed said it would now be buying about $85 billion in long-term securities each month.

In a reflection of optimism over their new policy path, officials lowered their forecast for the unemployment rate at the end of 2014 to a 6.7 percent to 7.3 percent range, down from a range of 7.0 percent to 7.7 percent in June.

Still, even in 2015, they believe the jobless rate will be above the 5.2 percent to 6 percent range where they think it should eventually settle.

One official, Richmond Federal Reserve Bank President Jeffrey Lacker, dissented against the decision, as he has at every FOMC meeting this year.

source: interaksyon.com