With two weeks to go until the unofficial end of summer, volume remains light as the beach trumps the trading floor.

The Big Picture 

But while Wall Street empties and Washington wrangles with gridlock,Wyoming takes center stage as the Federal Reserve holds its annual two-day meeting in Jackson Hole.  Hints of the Fed tapering its bond buying program have pushed treasury yields to 2.9%, a level not seen in three years.  Those higher interest rates have in turn unsettled equity markets and are blamed for the recent equity sell-off. 

Higher rates not only compete with stocks for investor dollars, they cut into the profits of financial concerns that have made money by borrowing money from the Federal Reserve at virtually zero and either investing in higher yielding assets or loaning that free money at a substantially higher rate.  Signs of a slowdown in the housing recovery are blamed on rising mortgage rates – although they remain at historically low levels. 

A slowdown in housing would be a drag on overall economic activity – another negative for equity markets.  However, the jury is still out and until a verdict is announced, or the Federal Reserve empties the punch bowl, the underlying fundamentals remain positive.  What’s needed is a larger pool of traders, some of whom may see the glass as half-full as opposed to half-empty. 

I, Investor 

The Federal Reserve is the dominant focus this week, with the minutes from the July 30-31 meeting due out tomorrow and the annual Jackson Hole retreat taking place without lame-duck Chairman Bernanke. Speculation is rife regarding his replacement and when the $85 billion per month purchase of fixed-income securities will come to an end.  July existing home sales data will take a back seat to the Fed. 

Thursday has the weekly jobless claims release along with the July leading economic indicators reading.  This week ends with data on July new home sales. 

Next week starts off with July durable goods orders – orders for items designed to last three years or more.   A rise in orders portends continued economic growth.  August gauge of consumer confidence is due out Tuesday, August 27th, followed by July pending home sales on Wednesday.  Thursday, August 29th sees revisions to second quarter GDP and corporate profits data as well as weekly jobless claims.  While no early close is scheduled for equity or bond markets on Friday, expect volume to dry up after the release of July personal income and consumption figures, the Chicago purchasing manager’s index and the final August consumer sentiment reading. 

Until volume picks up and/or clarity comes from the Fed, look for range-bound action with stocks encountering resistance at the August highs and support building between the 50-day and 200-day moving averages.  

Speak Your Mind