“Six Months” Freaks Out the Market

This was a rather odd day on Wall Street today. At 2 pm, the Fed came out with its policy statement, and it was pretty much as expected. People expected more tapering. Well, that’s what we got. People expected they’d ditch the Evans Rule. We got that, too.

The stock market fell shortly after 2 pm, and the near-term part of the yield curve showed some weakness, particularly the 2s and 5s. The S&P 500 dropped from around 1,873 to around 1,865. So it was not a huge drop; it was probably traders selling on the news.

One newsworthy item was the “blue dots” in the Fed’s guidance. There’s now a solid majority at the FOMC that believes that interest rates will rise next year. In fact, 10 of the 16 FOMC members think rates will be 1% or higher by the end of next year. That seems pretty hawkish, but I’d be careful not to read too much into that. The end of next year is still 21 months away. The stock market soon had second thoughts and the S&P 500 quickly came back to the high 1,860s.

Then Janet Yellen began her press conference, her first as Fed chair, and the market quickly headed south again. Even though she spoke for an hour, she made one small comment that the market latched onto. While the Fed statement said that it would be a considerable time between the end of QE and the first rate increase, she defined that as “around six months.” Well, that kind of freaked people out.

Let’s back up. If the Fed continues on its current tapering path, that would end QE around December of this year. Six months after that places us around June 2015. I think that’s earlier than people were expecting. In fact, this is so odd that I suspect that Yellen misspoke, and the market is making too much out of this. The S&P 500 bounced off 1,850 and rallied up to close at 1,860.77 for a loss of 0.61%.

The utility stocks dropped the most today, which makes sense because investors like to buy utes as an interest rate play. Defensive areas like healthcare and staples were down the least.

Let me also touch on Oracle ($ORCL). The stock was down sharply in yesterday’s after-hours session. I think it was off by more than 5%. Their guidance on the conference call wasn’t so bad. Sure enough, the stock opened at $37.80 and got as low as $37.40, but by early afternoon ORCL rallied as high as $38.96 per share. Yes, Oracle was positive by 12 cents! But due to Janet’s “six months” comment, ORCL closed lower by 29 cents or 0.75% which was basically inline with the overall market.

Posted by on March 19th, 2014 at 5:08 pm


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