Home / The Markets This Week

The Markets This Week

August 20, 2014 | Weekly Commentary

Strong economic news and mostly positive earnings reports couldn’t offset fears last week that the Federal Reserve finally has started to pull away the punch bowl, albeit very slowly. Stocks had their worst one-week drop since January, and the Dow Jones Industry Average toppled into negative territory for the year.

The Federal Reserve delivered a modestly more upbeat assessment of inflation, jobs, and the economy after its two-day meeting last week. Its assessment, combined with last week’s stronger-than-expected report on gross domestic product and news of 209,000 job gains in July, cemented the belief that the central bank will conclude its Treasury purchases in October and start raising rates in 2015 if the economy continues to improve.

“This is the beginning of a little taper tantrum,” says Diana Joseph, chief investment officer at Barrington Strategic Wealth Management. As the Fed’s easy money-policies reverse, people are forced to focus more on what they’re paying for investments. If last week is any indication, investors didn’t like what they saw in their portfolios.

The Dow fell 467.20 points this week, or 2.75%, to 16,493.37. The Standard & Poor’s 500 index dropped 53.19 points to 1925.15. The Nasdaq Composite index fell 96.92 points, or 2.18%, to 4352.64.

The S&P is down 3.16% from this year’s high of 1987.98 and the selloff could have more room to run. “My incoming calls from financial advisors are running 10-to-1 with most asking what they should buy, and that’s not good,” says Jeffrey Saut, chief investment strategist at Raymond James.

The calls indicate advisors are still optimistic and willing to buy the dips. “It feels to me like we’ve started a 10% to 12% correction,” says Saut, who has 25% of his portfolio in cash. But he’ll be more certain when he sees the market’s action next week.

Among the bigger losers in the Dow last week were shares of Exxon Mobil (XOM) and Chevron (CVX). Both fell by just over 4% despite strong earnings reports, as they disclosed they had experienced declines in production in the latest quarter. The price of crude fell during the week to $98 a barrel.

(Source: Barrons Online)

Visit www.theweeklycommentary.com for more posts in this category. DISCLOSURES