Welcome to CrushTheStreet.com’s Weekly Market Wrap Up!
The top story of the week is the stunning announcement by the Chair of the Board of Governors of the Federal Reserve System, Janet Yellen, who reiterated the current policy of monetary accommodation. The legacy of quantitative easing left behind by Yellen’s predecessor, Ben Bernanke, will still be on the books when the Federal Open Market Committee is scheduled to convene later next month. The decision to maintain the status quo for now represents a dramatically contrarian move on the Fed’s part considering the majority consensus amongst financial experts regarding an interest rate hike. What this means for investors during the interim is higher valuations for domestic indices and virtually guaranteed fluctuations within international markets. However, the choice words used by Yellen in her widely publicized statements confirm the validity of bearish concerns that have been brewing for some time.
The intraday volatility of the S&P 500, which actually opened the session of Yellen’s announcement in the red, denotes the disconnect between equity markets and real-world fundamentals. At its lowest point, the benchmark index dropped to its 50 day moving average in full anticipation of a hawkish shift in monetary policy. Instead, it closed up 1.21-percent, achieving very similar gains with the Dow Jones Industrial Average. This see-saw action may have benefitted those who trade on magnitude of near-term volatility, but against a long-term perspective, there’s little justification for such a swing, at least in light of mainstream prognostications. Over the course of the past year when the labor market on a purely nominal basis showed significant signs of improvement, financial analysts covering the entire spectrum of big business media had forecasted an eventual reversal in monetary policy. Recent shifts in commodity markets, followed by an acute lift in dollar strength relative to international currencies, lent further weight towards the hawkish argument. So the idea that one announcement could change everything speaks either to the fragility of the financial markets, or that the underlying economic fundamentals have never been that strong to begin with.
It’s important to recognize that the mainstream media can’t have it both ways. The hawkish argument stems directly from the assumption that the economy is healthy enough to absorb a rise in rates; otherwise, there’s no point in exiting the gravy train prematurely only to discover later that the economy needs more juicing. At the same time, one cannot then make the argument that the market is inherently strong since recent patterns suggest that without Fed intervention, the market can’t maintain its currently lofty valuation. Perhaps what was most startling about Janet Yellen’s announcement was not her contrarian policy decision, but rather, her subtle admission that all is not well with our economic condition.
In financial news, the U.S. equities sector softened after the crude oil market took a sizable hit, with the Dow Jones falling off the 18,000 threshold, while the benchmark S&P 500 closed down half-a-percent against the prior. On the other hand, the precious metals complex regained momentum, with gold moving up to 1,170 while silver had a huge swing, closing nearly 4-percent higher and regaining the 16-dollar threshold. Palladium was the odd man out within the complex, freefalling throughout the week and ending up at 767 on the ask. In digital currency news, bitcoin absorbed a correction after failing to secure the 300 mark, with bullish traders looking for technical support at 250.
And that will do it for this edition. Thanks for watching and we’ll see you next week!