Sellwood’s Second Quarter 2013 Market Snapshot is available.
Second Quarter 2013: Reinterpreting the Fed
Markets around the globe ended the quarter in flux as investors attempted to interpret Ben Bernanke’s latest press conference. The FOMC Chairman, citing improved economic outlook and reduced downside risks, suggested that the Federal Reserve could scale back its third round of quantitative easing contingent upon an improved economic outlook. Rates on the ten-year Treasury, which had been moving steadily upwards throughout the quarter, jumped to over 2.5%, a level not seen since the summer of 2011. Interest rates on 30-year fixed-rate mortgages experienced their biggest one-week jump in 26 years on the news that the Federal Reserve might slow down bond purchases earlier than previously expected. The S&P dropped 4.8% over 5 days after Bernanke’s statements but still finished higher for the quarter, closing at 1,606.
The second quarter brought an end to the Japanese stock market rally as the Nikkei 225 Index closed the quarter at 13,677, down 11% from its May high while still up 32% for the year. Investors expressed renewed fears in China’s growth prospects as well as concerns over the fragility of its banking system as the People’s Bank of China was forced to stabilize the interbank lending market after rates jumped higher in the last week of the quarter. Emerging markets have been under continuous pressure so far this year as political protests, decreased demand for natural resources, and slowing growth have forced large-scale sell offs in currency,
stocks, and government bonds.
Looking ahead, continued sluggish growth in Europe and new stresses in emerging markets might force the Federal Reserve and other central banks to continue with stimulative efforts for longer than anticipated even with continued labor market improvement and rising consumer confidence.