Markets Tumble as Fed Outlines Stimulus Wind-Down

Markets

For the week of Monday, June 17, 2013 through Friday, June 21, 2013:

• Standard & Poor’s 500 Index: -2.09%
• Dow Jones Industrial Average: -1.79%
• NASDAQ Composite: -1.93%

The stock market inched up Monday and pushed to their highest levels in nearly three weeks on Tuesday, as investors awaited news on whether the Federal Reserve will pull back on its stimulus efforts. Small-company stocks were among the best performers in Tuesday’s rally.

On Wednesday, when Federal Reserve Chairman, Ben Bernanke, spoke, investors cringed as he said the Fed could begin trimming the size of its monthly debt purchases this year. Stocks declined and both Treasury-bond yields and the dollar rose sharply. Stocks continued to fall for a second day on Thursday after Bernanke outlined the start of a wind-down of the stimulus measures that has been instrumental to the market’s rally. His comments triggered selloffs in markets that have been supported by the Fed’s $85 billion monthly asset purchases. Stocks closed mixed on Friday as bargain hunters lifted the Dow and S&P 500 after two days of heavy losses. The tech-heavy NASDAQ Composite was weighed down by weakness in ORCL shares, following an earnings miss.

Economic Data

• Chain Store Sales:
  • The Chain Store Sales Index rose 0.3% in the latest week.
  • Year-over-year growth rose to 2.5%.
• Consumer Price Index:
  • The Consumer Price Index rose 0.1% in May.
    • Inflation was kept in check with flat gasoline prices and falling food prices.
  • Core CPI rose to 0.2%, as a result of the jump in the shelter index.
• Housing Starts:
  • Housing starts advanced 6.8% in May to 914,000 annualized units.
    • The gain was driven by an increase in multifamily starts.
    • Single-family starts were almost flat.
  • Permits fell month-to-month by 3.1%, while completions slid 0.9%.
• MBA Mortgage Applications Survey:
  • Mortgage application activity composite index fell 3.3%.
  • The purchase index fell 3%.
  • The refinancing index fell 3.4% to its lowest level since the fourth quarter of 2011.
• Federal Open Market Committee Meeting:
  • The FOMC announced the Fed will continue purchasing $45 billion in Treasury bonds and $40 billion in mortgage-backed securities each month. 
  • The Fed made no changes to the interest rate policy.
  • The FOMC stated that fiscal policy is “restraining” economic growth.
  • It also noted that transitory factors have led to below-target inflation.
• Jobless Claims:
  • Initial unemployment claims rose 18,000 to 354,000, reversing the prior week’s decline.
    • The prior week’s claims were revised higher by 2,000 to 336,000.
  • The four week average rose 2,500 to 348,250.
    • Continuing claims fell 40,000 to 2.95 million.
• Existing Home Sales:
  • Sales of existing homes increased in May to 5.18 million annualized units, up 4.2% from April.
    • Sales reached their fastest pace since fall 2009.
    • Inventories increased 3% month-over-month.
  • Listings are down 10% from last year, with only a 5.1 month supply on the market.
  • The median existing-home price is up by 15% year-over-year.
    • Tight inventories and the decline in distressed home sales helped drive the strong price growth.

Earnings:

• Adobe Systems Inc. (NASDAQ: ADBE)
  • Adobe Systems Inc. reported profit shrank during the fiscal second quarter; however, the Creative Cloud subscriptions kept increasing. 
  • Income fell to $76.6 million, or $0.15 per share, from $233.9 million, or $0.45 per share last year.
    • The company said it earned $0. 36 cents per share excluding one-time costs.
    • Revenue fell to $1.01 billion from $1.12 billion.
  • Analysts expected earnings of $0.33 cents per share on $1.01 billion in revenue.
• FedEx Corporation (NYSE: FDX)
  • FedEx Corp. earned $303 million, or $0.95 per share, compared to $550 million, or $1.73 per share, a year earlier.
    • Excluding one-time items, FedEx should have earned $2.13 per share, beating expectations of $1.96 per share in adjusted earnings.
  • Fourth-quarter revenue rose 4% to $11.44 billion, missing analysts’ expectations of $11.46 billion.

Interest Rates

• The two-year Treasury rate increased four basis points to 0.32%.
• The five-year Treasury rate soared 25 basis points to 1.31%, a new 2013 high.
• The 10-year Treasury rate climbed 26 basis points to 2.41%, a 15-month high.
• The 30-year Treasury yield soared 15 basis points to 3.47%, a one-year high.

Disclosures

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