FOMC More Accommodative After Rocky June:
Stocks fell today in the afternoon after the FOMC kept interest rates at the same level and stayed accommodative as we expected. The recent jump in home sales may be short-lived as consumers recalibrate and look forward to low interest rates ‘indefinitely’. Ben Bernanke and company mentioned nothing about tapering and the statement released today did not include the “T-word”. Here is an excerpt from the July 31, 2013 statement:
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.’
Ben Bernanke and the Fed haven’t changed their tune although they did change expectations and could have decreased leveraged positions counting on a low interest rate for the foreseeable future.
The jobs number this month could swing the momentum pendulum and the sharp reversal in equities at the close of the session kept long traders away until after the number is released. This could be a new entry point for long-term holders if the number is well received and suggestions of ‘tapering’ decline. The Fed can’t have the dual issue of an outgoing chairman and raised interest rates at the same time. The market simply can’t handle the uncertainty. We expect the low interest rate message to become a focal point as possible changes in the Fed Reserve head take precedent. Jobs numbers above 200,000 could change bullish sentiment but the continued ‘Great Rotation’ is expected.
Stay tuned for our July 2013 jobs number prediction we will be releasing Friday morning on the ToryCapital.com Facebook Page. Today, the Dow Jones Industrial Average fell 21 points to 15,499.