U.S. Markets Tip Tapering On September 2013 Fed Move, The Potential Impact On Emerging Markets, Europe?

new home sales data 2000 through 2013

Traders Indecisive As NASDAQ Halts Trading, Jobless Claims & Housing Starts Down:

Fed tapering will have an impact on world markets and the U.S. housing industry.  Economic data for the week ended August 23 mainly, initial jobless claims and new home sales data was below expectations. Jobless claims for August 15, 2013 came in at 330,000 which was less than the 336,000 economists were expecting.

Sales of newly built homes fell to the weakest since October declined 13.4 percent to a 394,000 annualized pace the Census Bureau reported Friday. Analysts were estimating the number to be 487,000. Last month’s decline was the largest since May 2010 and the housing market shows no signs of expansion without low rates – indefinitely.  The jobs and housing news released this week helped increase bullish stock sentiment that the Fed might not taper this year.  The new home sales graph above shows no resilience and the impact of the perception of higher interest rates is sharply denoted with the downturn in sales.

NASDAQ Halts Trading

Volatility increased after the NASDAQ halted trading at around 12:15 on Thursday August 23, 2013 due to internal errors. The market was relatively strong soon afterwards but the gains dissipated later in the trading session.  The XLF -financials ETF was up .15% for the week, the Dow was down .45%, while the NASDAQ QQQ and IWM small caps ETF were up 1.56 and 1.47 respectively which signals some investor optimism.  The S&P 500 finished out the week with a marginal gain of .48%

The Near-Term Outlook

The short-term equity market outlook is cautions but constructive in the near-term.  The ToryCapital forecast is less bearish than a couple of weeks ago as investors look for new entry levels and consolidation occurs.  The S&P 500 broke though key support levels earlier in the week that would be good for a healthy market if no major correction occurs in the next few days.  Continue to look at non-participants in the recent rally like Apple and Facebook as well as the emerging markets EEM ETF.

Europe, Emerging Markets, Fed Tapering & A New FOMC Chairman

Europe is looking like a better investment in the short-run if FOMC taper talk depresses markets and investors become uncomfortable with Larry Summers as the new head of the Federal Reserve Bank.  Summers is associated economic liberalism and isn’t Wall Street’s top pick as the new Fed head although he seems the most likely to be chosen at the moment.

The recession in Europe looks less deleterious to medium-run economic growth and the sharp rate of increase in the 10 year note yield could increase risk aversion for U.S. assets if interest rates don’t fall back considerably.  The world economy isn’t ready for higher U.S. interest rates and no clear signals (numbers) on potential easing in September have leaked which makes uncertainty a bit higher without further communication from the FOMC.

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