The Week In Review
6/20/14
Equity indices pretty much ran in circles on Monday, having closed the session close to where they began. The indecisive nature was attributed to some worrisome-sounding headlines on the geopolitical front, yet the market action suggested it may have been owed more to a case of wait-and-see in front of Wednesday's FOMC meeting. Oil prices were little changed despite the news that the militant group, Islamic State of Iraq and Syria, took over yet another city in northern Iraq. The 10-yr note, gold prices, and the US Dollar Index, meanwhile, were also little changed, signaling that there wasn't a flight to safety on those headlines or the news that Russia cut off its gas supply to Ukraine after the two countries failed to agree on pricing.The stock market ended the Tuesday session on a modestly higher note with participants gearing up for the latest policy directive from the FOMC. Small- and mid-cap stocks led the way with the Russell 2000 and S&P Mid Cap 400 climbing 0.7% and 0.8%, respectively. Meanwhile, the S&P 500 added 0.2% with five sectors posting gains. Overall, cyclical groups did the bulk of the grunt work as five of six growth-sensitive sectors advanced. Financials (+0.9%) seized the lead at the start of the session and never looked back. Top-weighted components like Bank of America (BAC) and Morgan Stanley (MS) posted respective gains of 2.0% and 2.5%, while the entire sector extended its June advance to 1.9%.
The major averages posted modest gains on Wednesday after the Federal Open Market Committee announced another $10 billion taper, which was widely expected. The S&P 500 added 0.8% with all ten sectors posting gains. Equity indices spent the first half of the session near their flat lines as market participants held pat ahead of the afternoon statement from the Fed. The $10 billion reduction lowered the size of monthly asset purchases to $35 billion, while the remainder of the policy statement struck a familiar tone. The Fed reiterated its commitment to the current level of interest rates, saying rates are likely to remain low for a considerable time after quantitative easing ends. Furthermore, the FOMC released its economic projections, but those were not too different from the prior forecast either. According to the projections, the Fed expects the jobless rate to be between 6.0% and 6.1% at the end of the year after calling for a rate between 6.1% and 6.3% in its last set of projections.
On Thursday, the major stock indices managed to hold fairly steady in what was a seesaw day of trading; longer-dated Treasuries experienced a notable reversal that left the 10-yr note down 12 ticks and yielding 2.63% while the front of the curve remain propped up with buying interest; commodity prices were higher with precious metals prices moving up sharply; and the US Dollar Index was down 0.3%. A 3.6% jump in gold prices to $1318.00/troy ounce and the weakness at the back end of the Treasury curve were cited as expressions of inflation concerns with market participants acting uneasy about the Fed's seemingly complacent view of inflation. The explanation was not entirely out of bounds, but it also wasn't above reproach given that the dollar failed to bounce and the front of the Treasury curve held up just fine. Accordingly, it is too early to say whether the action on Thursday reflected genuine inflation concerns.
The major averages posted modest Friday gains to punctuate an upbeat week that saw relative strength among small-cap stocks. Fittingly, the Russell 2000 (+0.3%) settled just ahead of the S&P 500 (+0.2%). The two indices extended their weekly gains to 2.2% and 1.6%, respectively. The S&P 500 spent the entire session in the green, but was limited to a four-point range as top-weighted sectors traded in mixed fashion. The modest gains were supported by the relative strength among groups like energy (+1.0%), health care (+0.8%), industrials (+0.4%), and financials (+0.3%), but the underperformance of consumer discretionary (-0.4%), technology (-0.3%), and consumer staples (-0.4%) kept the index from pulling too far away from its flat line.