Tuesday, September 21, 2010

Markets uncertain after Federal Reserve meeting

The gut reaction to the Federal Reserve announcement was favorable giving the Dow an advance of 80. But 2nd thoughts cooled enthusiasm & markets settled back. Dow ended up 7, decliners over advancers almost 2-1 & NAZ dropped 6. In the last hour, the Financial Index dropped from over 201 to the 198s.


Value185.45One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-2.07 (-1.0%)

The MLP index was exactly even in the 331s after being higher in the AM & the REIT index fell almost 4 to the 215s (profit taking after reaching yearly highs yesterday). Junk bond funds were essentially flat & the VIX was up almost 1 to the 22s (little changed in recent weeks). The € rose almost 2¢ to $1.32½ on what is viewed as an improving outlook for European banks.

Alerian MLP Index -- 1 month

Dow Jones REIT Index -- 1 month

VIX -- 1 month

10-Year Treasury Yld Index -- 1 month

Oil had its biggest loss in Sep, a day before a gov report that may show US refineries operated at their lowest rate in 5 months indicating less demand for oil. Gold traders cashed in profits but gold still has a pretty chart.

CLV10.NYM..Crude Oil Oct 10..72.85 ..Down 1.87

GCU10.CMX..Gold Sep 10..1,271.80 ..Down 7.20

$$$ Gold Super Cycle $$$
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Ben S. Bernanke, chairman of the U.S. Federal Reserve

Photo: Bloomberg

The Federal Reserve (FED) signaled that it is worried about the weakness of the recovery & is ready to take further steps to boost the economy if needed. FED officials said they are also concerned that sluggish economic growth could prevent prices from rising at a healthy rate. However at the end of its meeting, the FED held off taking any new steps to rejuvenate the economy & drive down unemployment. Instead, it hinted that it is prepared to see if the economy can heal on its own. The same language used in Aug sketched a downbeat view of the economy. It concluded that economic activity has slowed in recent months & warned that the pace of growth is likely to be "modest in the near term." The FED also delivered a stronger signal that it would take new steps to help the economy saying, it is "prepared to provide additional accommodation." The markets considered this statement to be mildly encouraging.

Fed Says Prepared to Ease Further, Refrains From New Purchases

Treasuries gained, pushing the yield on the two-year note to a record low, after the FED said it’s willing to ease monetary policy further to boost the economy & lower unemployment. The yield on the 2-year note dropped a very large 3 basis points to 0.43% after touching a record low 0.4236%. The yield on the 10-year note fell 11 basis points to 2.59%.

Treasuries Rise, Pushing Two-Year Yield to Record Low, After Fed Statement

Treasury Yields

U.S. 3-month
U.S. 2-year
U.S. 10-year

Apple (AAPL) was up a ½ in the 283s after gaining 4 in early trading, another record high on no news. AAPL, gold & the 2 year Treasury note are each reaching new records, but it's difficult to see the connection.

Apple --- YTD

There was a lack of conviction in stock buying after the FED announcement & selling in the last hour hurts the bullish argument. Treasuries rallied sharply (while bank stocks sold off) after the meeting, accounting for the reduction on Treasury yields. Asian markets open shortly, they will give more feedback about implications of FED's meetings.

Dow Jones Industrials -- 1 month

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