The recent day-to-day movement in stock prices has proved investing is not for the meek.
Critics of the Federal Reserve have claimed for the past few years that the low interest-rate policy -- the Fed funds rate lingers near zero -- has benefited the one-percenters who have all their money in the stock market and have reaped the benefits of soaring share prices. Well, trading on Thursday and Friday, after the Fed decided to keep rates low, certainly didn't do anything to benefit investors, large or small. From the moment Janet Yellen began her press conference defending the decision to postpone a rate hike, the markets went into a free fall, dropping 160 points on Thursday and another 290 points on Friday.
Don't do something, just stand there. Yes, my favorite quote from legendary investor John Bogle regarding what to do during stock market turmoil seems very appropriate for the policy decision yesterday by the Fed. Despite an unemployment rate that suggests full employment in the United States and the lack of any significant inflation in the United States, the Fed opted yesterday to leave short-term interest rates unchanged, basically at zero.
It appears the Federal Reserve is doing everything possible, even pulling out a card that has never been played before, to keep from raising short-term interest rates.
Will they or won't they? That is the question being debated by financial analysts, investors, consumers and others this morning as we wait for the announcement at 11 a.m. Pacific time this morning regarding the economy and interest rates. There are legitimate arguments on both sides of the debate over whether or not the time has finally arrived to begin the process of raising short-term interest rates to make a preemptive strike against phantom inflation. Regardless of the decision, we will learn a lot more than what is included in the formal statement when chair Janet Yellen holds a press briefing about a half hour after the announcement is released.
What is the message behind yesterday's 229-point rally in the Dow industrials? Obviously, it likely has something to do with the Fed meeting that started this morning and will end tomorrow with a press conference by chair Janet Yellen. Some would say the move higher in stock prices is based on the idea there will be no increase in short-term interest rates because of the recent volatility in the global economy, especially China. Yet others will say the markets are encouraged by the improving U.S. economy that will cause the Fed to move and raise rates for the first time in nearly a decade. Either way, we'll find out tomorrow what, if anything, the Fed will do.
Stocks are opening higher this morning as investors cast their votes on what to expect from the Fed on Thursday. Yesterday the Dow industrials drifted lower by 62 points but have moved up triple digits in early trading today. It is always fun to see stocks move up after MarketWatch.com runs a story with the headline, "Cash may be a sanctuary in this fear-ridden stock market."
One of my favorite expressions from legendary investor John Bogle is, "Don't do something, just stand there."
A pause in the recent stretch of losses on Wall Street. The Dow industrials posted their biggest gain in nearly six months last week by posting a solid gain of 2.1 percent. It snapped a 10-week losing streak for the major market indexes. Of course, the business media scoffed at the gains. A reporter for Barron's, owned by the Wall Street Journal, said, "There's little indication the gains will stick." Avi Salzman used a couple of investor sentiment surveys to support his claim. Avi must be right out of his high school journalism class and unaware negative investor sentiment is actually a positive for the stock market. As Warren Buffett has said repeatedly, you buy stocks when no one wants them and sell when people are anxious to buy.
Remembering. Regardless of whether the stock market is up or down today, it is the haunting memory of the events 14 years ago that will be top of mind. The deadly terrorist attacks in New York and Washington, D.C. are a vivid memory for those of us who were around on Sept. 11, 2001.
Friday's report on the producer-price index — a measure of prices received by U.S. companies for goods and services — showed prices at the wholesale level were unchanged in August, after rising 0.3 percent in the previous month.
Paranoia continues to haunt Wall Street. Hesitant to celebrate success, the stock market did a U-turn yesterday after posting a gain of 170 points on the Dow industrials in the first hour of trading. And, at the close the index was down 239 points, erasing a big chunk of Tuesday's 390-point gain. The reason for the volatility seems to be the edginess over next week's Fed meeting and the remote possibility a hike in short-term rates could be imminent. Not likely, but possible.
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