THE FED GIVETH AND THE FED TAKETH AWAY
During the first week of April, the market dropped dramatically. It was the worst week for stocks in 2012. Everybody was asking, "Why the drop? We just had a big rally. What the heck happened?€
It all started with a speech. On March 26, Federal Reserve Chairman Ben Bernanke spoke to the National Association for Business Economics in Arlington, Virginia. In that speech he said the economy and the unemployment rate were improving, that they still have a long way to go, and that the Fed was amenable to €continued accommodative policies.€
The market was euphoric. "Oh, goodie,€ thought investors, €Bernanke means they're going to give us more candy. There's going to be quantitative easing, more stimulus. Another trillion dollars is going to be pumped into the economy. This is wonderful!" The market went up. Everybody was excited and everything was great.
Then the Fed released the minutes from the March 13th meeting of the Federal Open Market Committee. In the minutes, we could now read how the committee members came to their decisions, and what they actually said. It wasn't quite the message that had been interpreted. What the committee meant was, €We don't plan on doing any more stimulus right now, because the economy is doing fine as we see it. But we are ready to provide it if it's needed in the future.€
€Wait a minute!€ said the investors. €What? We thought you were bringing candy to the party! Now you're not?€ So the market tanked. It had gone up 165 points after Bernanke's speech, and then lost it all with the publication of the committee minutes.
But I don't think this is bad news. The Fed said, "We are not going to do more stimulus." Why? Because they believe the economy is getting better on its own and they don't need to help it anymore. That's a good thing, isn't it? And to further validate that point, recent economic data has been pretty positive. The retail sector has beaten their earnings' estimates handsomely, manufacturing numbers are up, and unemployment is the lowest it's been in four years.
So yes, it's been a wild ride, thanks to the Feds, or rather to the market's interpretation of the Feds' messages. But though we may have had the worst week of the year, I think the news is good.
During the first week of April, the market dropped dramatically. It was the worst week for stocks in 2012. Everybody was asking, "Why the drop? We just had a big rally. What the heck happened?€
It all started with a speech. On March 26, Federal Reserve Chairman Ben Bernanke spoke to the National Association for Business Economics in Arlington, Virginia. In that speech he said the economy and the unemployment rate were improving, that they still have a long way to go, and that the Fed was amenable to €continued accommodative policies.€
The market was euphoric. "Oh, goodie,€ thought investors, €Bernanke means they're going to give us more candy. There's going to be quantitative easing, more stimulus. Another trillion dollars is going to be pumped into the economy. This is wonderful!" The market went up. Everybody was excited and everything was great.
Then the Fed released the minutes from the March 13th meeting of the Federal Open Market Committee. In the minutes, we could now read how the committee members came to their decisions, and what they actually said. It wasn't quite the message that had been interpreted. What the committee meant was, €We don't plan on doing any more stimulus right now, because the economy is doing fine as we see it. But we are ready to provide it if it's needed in the future.€
€Wait a minute!€ said the investors. €What? We thought you were bringing candy to the party! Now you're not?€ So the market tanked. It had gone up 165 points after Bernanke's speech, and then lost it all with the publication of the committee minutes.
But I don't think this is bad news. The Fed said, "We are not going to do more stimulus." Why? Because they believe the economy is getting better on its own and they don't need to help it anymore. That's a good thing, isn't it? And to further validate that point, recent economic data has been pretty positive. The retail sector has beaten their earnings' estimates handsomely, manufacturing numbers are up, and unemployment is the lowest it's been in four years.
So yes, it's been a wild ride, thanks to the Feds, or rather to the market's interpretation of the Feds' messages. But though we may have had the worst week of the year, I think the news is good.
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