FINANCIAL INSIGHTS ARCHIVES (2013 Year)
Five Days in June
July 31st, 2013
By Matthew Petersen
The day before Federal Reserve Chairman Ben Bernanke spoke on behalf of the Federal Open Market Committee (FOMC), the S&P 500 declined by nearly 1.5%. Its descent beyond the chairman’s June 19th press conference continued until June 24th, at which point the S&P 500 reached a near 5% decline.
Since then, the index has recovered and moved steadily upward, and has surpassed its previous all-time high. What we saw on those five days of decline surrounding Ben Bernanke’s speech was a “swoon,” a market hysteria driven by selective hearing by the public.
The Quantitative Easing[i] (QE) measures that are in effect cannot and will not go on forever, and the extent of their employment is directly related to the growth and health of the economy. In his press conference, Bernanke actually spoke very positively about the growing improvement of our economy. The fact that Bernanke spoke of winding down the bond-purchasing program is indicative of his perception of a strengthening economy. The FOMC did not say that the QE was ending, but gave criteria that need to be met before it can begin its phase out. Unfortunately, Wall Street missed the positive message and instead focused on the fear factor of the QE’s abrupt termination. This selective hearing created irrational hysteria that resulted in the “swoon” of the equities market.
When the market takes a dip like it did, myself and my colleagues look to the consumer landscape and the world beyond market volatility. I observe consumer activity throughout the Tri-Cities and surrounding areas, as well as consult with consumers themselves. I speak with business owning clients concerning the health and sentiment of their commerce. Their insightful knowledge regarding their customer’s purchasing habits, their organization’s productivity and profitability, and the overall activity of their businesses provides proof that industry operates independently of the daily movements of the financial markets.
Industry is the lifeblood and foundation of the financial marketplace. As long as industry as a whole thrives and moves along an upward slope, the long-term broad market will continue to grow.
For more information regarding the June 19th FOMC press conference, the 28 page transcript can be found here: http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20130619.pdf
[i] Quantitative Easing is the Federal Reserve’s bond buying program, where the Federal Reserve purchases $40 billion worth of mortgage-backed securities and $45 billion of long-term Treasury securities each month.