Wyoming becomes front-page financial news around the world for a week in late August every year and typically manages to stay completely out of the financial news the other 51. That week of notoriety is now upon us, because it’s time for the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming.
The jagged backdrop provided by the Grand Tetons is probably an appropriate way to remind us that markets have their ups and downs, and those moves are sometimes quite volatile. There will not be a keynote address by Fed Chairman Ben Bernanke this year. In fact, there will not be a Fed keynote at all, and Ben himself won’t even be there. Apparently, this is the first time in 25 years the sitting Fed Chairman hasn’t accepted an invitation to Jackson Hole. In the past few years, the keynote pulpit has been the launch point for major Fed initiatives. This year, the entire conference may be relegated to “ho hum” status. Even Janet Yellen, the Fed Vice-Chair and the current front-runner to replace Mr. Bernanke, will not be delivering a speech. Lawrence Summers, another contender for the job, will also be absent from the confab.
Despite the downgrading of the importance of Jackson Hole, the Fed still managed to move markets today by releasing the minutes from its July meeting. That report did little to reveal anything new, as it appears the committee remains divided as to when tapering of the $85 billion in monthly bond purchases should begin. However, officials are “broadly comfortable” with Bernanke’s plan to begin tapering later this year. According to the minutes, “Almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few believed “it might soon be time to slow somewhat the pace of purchases as outlined in that plan”.
Markets took a dive upon the release of the minutes but started to rally ten minutes later. The upward move was strong, although it only lasted half an hour, and then slowly faded into the close. As a result, both stocks and bonds experienced afternoon volatility and closed near their lows for the day.
Your eyes are not fooling you – there really is noticeable degradation in the Sector rankings today. A week ago, only Real Estate was in the red and four categories were trending upward at more than 25% annualized. Today, four sectors join Real Estate on the downside, and the weak market conditions severely reduced the strength of the leaders. Technology completed its multi-month climb from last place to first. Its final move up from third place a week ago is not so much a sign of strength but a sign of “less weakness” compared to the other sectors. Industrials remained just one step behind Technology, moving from fourth to second. Consumer Discretionary, the former leader, slipped two places, and Health Care dropped from second to fourth. Materials and Financials held their positions, although the Financials sector is on the verge of joining the five with negative momentum. The intermediate-term trends of Energy, Consumer Staples, Telecom, and Utilities have now turned negative. Being on the bottom does not mean things cannot get any worse, as Real Estate lost the most momentum the past week and tightened its grip on last place.
Not much changed in the relative order of the Style rankings today, but it’s clear that most of the wind came out of the sails. Momentum scores ranged from 35 to 14 a week ago, making today’s range of 17 to 2 look puny by comparison. Small Cap Growth hung on to its top ranking as it found support at its 50-day moving average. Micro Cap remains in second place. We view Small Cap Growth and Micro Cap as the two most aggressive categories in the Style rankings. The fact they remain the strongest pair during this period of weakness suggests the market pullback may be short lived. All categories are registering positive momentum for now, although Mega Cap is on the verge of turning negative. Of course, another week or so of significant downside market action could potentially pull all eleven categories into the red.
Europe kept its position at the top of the Global rankings and was able to maintain most of its momentum. China managed to climb from fourth to second, although short-term weakness could send it back down again. EAFE fell a notch to third as the UK climbed a spot to fourth. World Equity and Canada also saw their relative positions improve this week. Canada is gaining relative strength on the recent surge in precious metals and mining companies. All of the categories improving their position did so at the expense of the U.S., which tumbled from third to seventh and is now the lowest ranked region still posting positive momentum. Japan and Pacific ex-Japan both slipped into negative territory this week. Emerging Markets moved deeper into the red, and Latin America still has a lock on last place.
“Members judged that a highly accommodative stance of monetary policy was warranted in order to foster a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
From July 31 FOMC minutes released 8/21/13
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