Markets ended a slow trading week in the red, posting the biggest weekly decline since June. Stocks were pushed down by low volume and investor concerns about when the Federal Reserve will wind down its stimulus program. For the week, the S&P 500 lost 1.07%, the Dow fell 1.49%, snapping a six-week winning streak, and the Nasdaq slid 0.80%.
Last week was light on economic data and investors focused on whether or not the Fed is going to start tapering bond purchases after the September FOMC meeting. With a number of Fed officials going on record as supporting a September taper, it's looking increasingly likely that, if economic data continues to look optimistic, the Fed will pull the trigger next month. While Fed Chairman Ben Bernanke has reassured investors that no official date has been set, a chorus of top Fed policymakers suggested last week that they would like to start trimming back quantitative easing next month if economic reports turn out as expected, indicating that there may be some dissension in the Fed ranks.
Although recent macroeconomic reports have been largely upbeat, some economists are disappointed by the mediocre July jobs report. The net gain of 162,000 new jobs fell well below forecasts of 180,000 (and market rumors of gains of 200,000.) Digging deeper into the data, some analysts suggest that the job gains came largely from the volatile (and low-paid) part-time employment category. Other forward-looking indicators suggest that, though the headline unemployment rate dropped to 7.4% from 7.6%, it may tick upward in the near term. The unemployment rate is one of the major economic indicators that the Fed uses to guide policy, meaning a fickle labor market could throw a wrench into the Fed's tapering plans.
Looking ahead at this week's ticker, analysts and investors will be paying close attention to a raft of economic data, including July retail sales, the Philadelphia Fed Survey, and housing data for clues as to which way the Fed may jump next month. Two high-ranking Fed officials are scheduled to give speeches on Tuesday and Wednesday, meaning we may get more hints about how Fed economists feel about the economy and how likely a September taper may be.
As we've mentioned in recent commentaries, we usually do not view minor pullbacks as cause for alarm. Healthy markets do not move up in a straight line; they move up and down. For this reason, we do our utmost to keep focused on long-term trends rather than short-term movements. If you have any questions about how the tapering of QE, or how recent market moves may affect you, please feel free to reach out to us. It is our pleasure to be of service.
Monday: Treasury Budget
Tuesday: Retail Sales, Import and Export Prices, Business Inventories
Wednesday: Producer Price Index, EIA Petroleum Status Report
Thursday: Consumer Price Index, Jobless Claims, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Housing Market Index, Philadelphia Fed Survey
Friday: Housing Starts, Productivity and Costs, Consumer Sentiment
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The Nasdaq is a computerized system that facilitates trading and provides price quotations on some 5,000 of the more actively traded over-the-counter stock.