Tuesday, March 15, 2011

Early market losses are reduced after Federal Reserve meeting

Stocks felt comfort following the FOMC announcement. Dow finished down 137 but solidly below 12K, decliners ahead of advancers an improved 3-1 & NAZ dropped 33. Bank stocks also recovered in the PM, with the Financial Index ending 3½ above its lows.

S&P 500 FINANCIALS INDEX

Value	217.68
Change	-2.69 (-1.2%)

The Alerian MLP Index had a very bad day, down 7 to the 359s, but off the lows in the 353s. This market remains overbought. The REIT slipped 1+ to the 229s, above the lows in the 225s. Junk bond funds were down, but again off their lows in the AM. Treasuries lost much of their earlier gains. The yield on the 10 year Treasury bond was down 2 basis points to 3.32% for the day but far above the 3.20% yield at the start of trading. The Japanese disaster is confusing to assess, so yields are volatile like commodities & stock prices. Oil is back below $100 & gold broke below the important $1400 support level.

Treasury yields:

U.S. 3-month		0.09%
U.S. 2-year		0.61%
U.S. 10-year		3.32%

CLJ11.NYM

....Crude Oil Apr 11...

97.63

....

3.56 (3.5%)

GCH11.CMX

...Gold Mar 11

.....1,397.40

...

27.20

(1.9%)

The Federal Reserve (FED) expressed more confidence in the US economy even as Japan's nuclear crisis raised worries around the globe. The FED said the economic recovery is on "firmer footing" & the jobs market is "improving gradually." That's a more upbeat tone from its previous meeting in Jan. After that meeting, FED said the rate of economic activity was "insufficient" to bring about "significant improvement" in the job market. It will maintain the pace of its $600B Treasury bond-purchase program which is scheduled to end in 3 months. The FED downplayed inflation risks, it said higher prices for energy & other commodities are increasing inflation, but predicted that the pickup in prices will be "transitory." Despite the more optimistic outlook, the list of potential risks to the economy has grown since the last meeting. Japan is the world's 3rd-largest economy, so the earthquake & ensuing nuclear crisis are certain to affect the global economy. Oil price have spiked since Jan, rising as investors worry that unrest in the Mideast & Africa could hurt global supply. Even with the recent slide in crude oil, gasoline prices have stayed high at $3.55 a gallon (yesterday) nationwide.

Federal Reserve Open Market Committee March 15 Policy Statement: Full Text

Here's the curent chart of gas prices in the US.
State's Graph

Source: AAA

It's difficult to make sense out of these markets when conditions in Japan are changing hour by hour. The nuclear disaster is growing worse, ugly to think about. Businesses are starting to understand how this will affect their operations & that's becoming very bad. Major Japaneses companies are closing factories. There will be a massive rebuilding phase, but that looks to be a long way off. Meanwhile, Libya is fighting its rebels & looks to be getting the upper hand. The rest of the Mideast is bubbling with thoughts of rebellion. Remember Congress? It needs to approve an extension of the current budget to keep federal offices open after Mar 18. That problem has been lost with the Japanese disasters dominating our attention. Feb18 was the recent high for the Dow & MLP index. It seems a long way off. In these uncertain times, all that can be done is maintain cool & those with larger cash positions feel a modest sense of comfort.