• Investing & Markets

Weekly Market Digest — Week Ending 9/23

September 23, 2011 | Craig Birk, CFP®

Gloom and doom were the themes of the week. Stocks were headed for a modest loss before the Fed’s announcement of “Operation Twist,” in which it will sell shorter term government bonds and buy longer term ones in hopes to lower long term interest rates. The move was immediately successful in pushing interest rates down, but coupled with the Fed’s rather dour outlook for the US economy, also spooked markets and caused a significant selloff (6% on the S&P 500) over the next day and a half. Lots of talk came out of Europe about a plan to put a backstop behind toxic Greek debt, but nothing solid came of it.

Major Events:

  • Tuesday – The IMF lowered its global growth estimate. Copper prices fell sharply.
  • Wednesday – The Fed announced “Operation Twist”, surprising analysts with the size of planned purchases and the intention to go all the way out to 30 year Treasuries instead of just 10 years.
  • Thursday – Hewlett Packard announced Meg Whitman would replace Leo Apotheker as CEO after Apotheker oversaw a 50% decline in the stock price during his 11 month reign.
  • Thursday – FedEx cut earnings expectations due to slowing global economic growth, but said it did not project another recession.
  • Friday – Prices of gold and silver sold off 6% and 15%, respectively. The pummeling stemmed from a combination of weaker economic outlook and forced selling by investors who needed to cover loses in other areas.

Our Take:

We are not in a global depression, though you wouldn’t know it by reading the media or popular sentiment. The reality is things are not that bad, but they are not that good either. Reports of declines in commodity demand (it was reported in the Financial Times that Rio Tinto has had order cancellations) as well as the FedEx announcement are discouraging.

The G20 meets this weekend in Washington and there is hope that they will announce a solid plan to support Greece. We don’t expect much other than words. Bernanke’s strange “Operation Twist” seems to miss the mark. Interest rates are not blocking economic activity, fear is. Making strange big moves won’t make anyone feel more inclined to take risk. Also, flattening the yield curve reduces banks’ incentive to make loans.

Increased volatility is probably here to stay with a very bifurcated future ahead. Economic stabilization would lead to a big rally in stocks. Meanwhile, significant problems in Europe are priced into the market, but major contagion in the European debt crisis could cause big declines. Long term investors are best served making sure they have a strategy positioned to grow and weather volatility and then focusing on the new fall TV shows. Or, for the scientific types, perhaps following reports that CERN may have proved Einstein wrong by finding that certain particles may be able to travel faster than the speed of light. On that one, we have no opinion at this time.


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