Week in Review
This past week was taken aback by longtime White House economic adviser Laurence Summers pulling out of the contest to succeed Ben Bernanke as Chairman of the Federal Reserve. Wall Street rallied on the announcement. This leaves the door open for Fed’s Vice Chair Janet Yellen to get the nod. Wednesday saw another surprise, as the Central Bank decided to maintain it quantitative easing policy. The market was expecting either a $10 billion to $15 billion pullback in purchases or the possibility of a larger cutback in the borrowings, but this announcement was quite unexpected. The market rallied on this news, too, but retreated on Thursday and Friday after digesting that the economy is not growing fast enough to warrant a change in accommodative monetary policy and comments by the St. Louis Fed President that tapering may begin as early as October. In all, the Dow – despite a 185+ point drop on Friday – was up about one-half of one percent on the week, and the S&P 500 and the NASDAQ rose by 1.3% and 1.4%, respectively. The ten year Treasury yield fell to 2.735% from 2.896%. The historical low rates managed to push existing-home sales in August to a 6 ½ year high. Now the focus will be on fiscal policy as Washington debates over the month-end deadline to come up with a budget and later in October to either raise the debt ceiling or go into technical default. In 2011, such infighting caused S&P to take down U.S’ triple-A credit rating. Some more housing news will come out on Tuesday as will the September consumer confidence measure. No surprise: Lots of weekly noise, but all-in-all, the bulls are still in charge for now.
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