Week ahead: Taper Tantrum Continues

“Tempus fugit” (time flies)…It was just three months ago on May 22nd, when Federal Reserve Chairman Ben Bernanke suggested that the central bank could change its policies “in the next few [FOMC] meetings,” depending on prevailing economic data. Over the ensuing 90 days, investors have dissected every economic report, trying to figure out whether it would provide the Fed with proof that the economy is strong enough to withstand reduced intervention. It got so bad last week, that a weekly jobless report seemed to trigger a 1.5 percent one-day sell-off in stocks. Got that? A weekly report, for goodness sake!

This week, investors will seek further clarification and/or clues about the Federal Reserve’s plans to taper its $85 billion per month bond-buying program at the upcoming policy meeting September 17-18. The minutes of the late July FOMC meeting, due on Wednesday, will be a precursor to the Fed’s annual Jackson Hole retreat at the end of the week. Skipping the party this time will be a certain current Fed Chairman. Because Bernanke will not attend, the event may not be quite as impactful as in previous years.

While some investors think that the central bank will wait until its December meeting to make a move, the bond market is acting like tapering has already occurred. The yield on the 10-year Treasury note settled at 2.83 percent on Friday, the highest level in two years. The jump in rates has made some nervous about the housing recovery. Despite a full percentage point rise in mortgage rates, data indicate that activity and price increases could slow, but the recovery should remain intact.

A word about energy prices: the turmoil in Egypt is likely creating investor anxiety and a corresponding rise in oil prices, but a reminder that since the Arab Spring, there have not been disruptions to the flow of oil and gas through the Suez Canal or Suez-Mediterranean (Sumed) Pipeline.

MARKETS: Stocks are down 3-4 percent from all time nominal highs, reached on August 2.

• DJIA: 15,082, down 2.2% on week, up 15% on year
• S&P 500: 1655, down 2.1% on week, up 16.1% on year
• NASDAQ: 3602, down 1.6% on week, up 19.3% on year
• 10-Year Treasury yield: 2.83% (from 2.48% a week ago)
• Sep Crude Oil: $ 107.46, up 4.5% on week
• Dec Gold: $ 1371, up 4.5% on week
• AAA Nat'l average price for gallon of regular Gas: $3.54

THE WEEK AHEAD:

Mon 8/19:

Tues 8/20:

8:30 Chicago Fed National Activity Index

Weds 8/21:

10:00 Existing Home Sales

2:00 FOMC Minutes 

Thurs 8/22:

8:30 Weekly Jobless Claims

8:58 PMI Manufacturing Index Flash

9:00 FHFA House Price Index

Fri 8/23:

10:00 New Home Sales