Courtesy of Scott Martindale, Senior Managing Director, Sabrient
Financials, Materials, Industrials, and Energy led the market to the downside on Wednesday after the Fed disappointed investors in their policy statement. In fact, investors were downright spooked, and the market fell about 2% in the last hour of trading alone. David Brown, founder and Chief Market Strategist here at Sabrient, told me that he can’t recall ever hearing such a negative statement on the economy from the FOMC. More weakness is likely for stocks.
After optimism abounded last week as nations around the world vowed to work together to save Europe, this week the Fed brought us back to reality by saying the economy has “significant downside risks,” including volatility in financial markets, high unemployment, depressed housing market, and cautious consumer spending. Plus, the IMF said that the global financial system is in its most vulnerable state since the 2008 financial crisis. The big “planning meeting” is taking place between finance ministers and central bank governors of the BRICS nations to address the European debt crisis. With the Greece 1-year bond yielding 134%, things could hardly be more urgent.
In an attempt to offer new stimulus to our economy, the FOMC announced its so-called “Operation Twist,” whereby they sell $400 billion in shorter-term Treasuries while purchasing an offsetting amount of longer-term Treasuries by the end of June 2012. The move is intended to drive down interest rates on long-term government debt and trickle down to mortgages and other loans. But with the 10-year Treasury yielding only 1.90%, you have to wonder how much impact it can make.
Financials were hurt on Wednesday when Moody’s cut its debt ratings on Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C), and the sector sold off hard in the final hour of trading. Notably, Tech stocks held up the best on Wednesday (and for the week so far, along with Utilities), as positive quarterly reports, favorable news, and analyst upgrades for stocks like Oracle (ORCL), Adobe (ADBE), Autodesk (ADSK), and Hewlett-Packard (HPQ) kept them in the green.
I have noticed that gold mining stocks have badly lagged the price run-up in gold bullion. I read an analysis of why this might be happening, citing high energy prices to produce it, high taxation, the threat of nationalization or confiscation in certain countries, and perhaps most importantly, the belief among equity…
