The Markets

An easy-does-it approach from the Federal Reserve’s monetary policy committee calmed immediate investor anxiety about future rate hikes. That gave both the Dow and the S&P 500 relief from a three-week losing streak. Meanwhile, the Nasdaq closed less than half a percentage point away from its all-time closing high of 5048.62, set in March 2000, and the small caps of the Russell 2000 continued to capitalize on fears of the impact of dollar strength on larger, multinational companies.

The Fed’s mild-mannered language also triggered a rapid drop in the U.S. dollar. Speculation about rate hikes had pushed the dollar’s value to roughly $1.05 against the euro at the beginning of the week. That plunged to $1.10 post-Fed before the dollar rebounded to end the week at roughly $1.07. Meanwhile, after the Fed announcement, the benchmark 10-year Treasury yield fell as investors felt more comfortable with bonds–at least temporarily.

Market/Index 2014 Close Prior Week As of 3/20 Weekly Change YTD Change
DJIA 17823.07 17749.31 18127.65 2.13% 1.71%
Nasdaq 4736.05 4871.76 5026.42 3.17% 6.13%
S&P 500 2058.90 2053.40 2108.10 2.66% 2.39%
Russell 2000 1204.70 1232.14 1266.37 2.78% 5.12%
Global Dow 2501.66 2488.94 2566.23 3.11% 2.58%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 2.17% 2.13% 1.93% -20 bps -24 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • As expected, the Federal Reserve’s monetary policy committee is no longer promising patience in starting to raise its target interest rate, which could mean a rate hike as soon as June. However, even if increases do begin in summer–and many Fed-watchers now expect a later start–committee members see rates rising at a more gradual pace than previously expected. A majority of members now predict a target rate of 0.625% by year-end–a half-point lower than last December’s forecast of 1.125%–while the median forecast for December 2016 is now 1.875% instead of 2.5%. Fed Chair Janet Yellen said that’s because the committee sees more moderate growth now than it did several months ago; factors that could help moderate the pace and timing of rate hikes include downward pressure on U.S. exports (partly because of a stronger dollar), low inflation, and interest rate cuts abroad.
  • Housing starts plummeted 17% in February as winter weather cut new residential construction to its lowest level in more than a year. The worst pain was seen in the Northeast, where starts fell 56.5% during the month. However, the decline could be temporary; the Commerce Department said building permits–an indicator of future activity–were up 3% from January and were 7.7% ahead of a year earlier.
  • Winter weather also increased the output of the nation’s utilities by 7.7% in February, which in turn helped push industrial production up 0.1% during the month. The Federal Reserve said a 0.2% drop in manufacturing output was the third straight monthly decline, while utilization of the industrial sector’s manufacturing capacity fell to 78.9%, slightly below its long-term average. Meanwhile, both the Empire State and Philly Fed manufacturing surveys showed modest growth that, while positive, was essentially unchanged from January’s pace.
  • The Department of the Interior unveiled new regulations for use of hydraulic fracturing (fracking) to drill for oil and gas on public lands. The new rules, scheduled to take effect in 90 days, will not affect drilling on private and state-owned land, where most fracking is done.
  • Greece has now made three of four repayments due on a €1.5 billion loan from the International Monetary Fund (a fourth was due on Friday). However, the country is reportedly facing a cash shortage that could make further payments difficult, and leaders continue to try to persuade other European Union members that greater leniency about the bailout’s terms is needed. Meanwhile, the Greek parliament declined to consult the country’s creditors before passing a bill that attempts to offset austerity measures; the government says the estimated €200 million cost of the program will be paid for by spending cuts, changes in governmental procurement practices, and new gaming-related revenues.

Eye on the Week Ahead

With rate-hike angst on temporary hold, domestic U.S. economic data may assume increased importance, though a Friday speech by Janet Yellen will be closely watched for more clarity about timing. A scheduled Monday meeting between Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel to discuss the Greek debt situation could rachet up concerns about Europe once again.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/ Market Data (oil spot price, WTI Cushing, OK); (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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