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Tickers in this Article: TBT, QQQ, SPY, DIA
Monday, August 12, 2013

Weak economic data out of Japan will likely keep the market’s overall tone to the negative side in today’s session as well. Stocks drifted lower last week, snapping a six-week winning streak, on seasonally lighter volumes.

There is some concern that the Fed may be getting ready to start ‘tapering’ its QE program at next month’s FOMC meeting. But the ‘Taper’ question is hardly new and doesn’t appear to be a good enough explanation for the market’s modest down drift. After all, we haven’t seen any renewed activity on the interest rates front. Treasury yields spiked a couple of months back when the ‘Taper’ issue took center stage, but have largely been stable in recent days. We don’t see any strengthening bid in the dollar exchange rate either, as would reasonably expected on ‘Taper’ becoming an issue all over again.

The Japan GDP data aside, we don’t have much on the domestic economic calendar today. But the rest of this week is full of important economic reports, with Retail Sales coming out on Tuesday and inflation, Industrial Production, and Housing Starts numbers coming out the rest of the week. In fact, this is the last week of major economic data before we get to the August jobs report early next month and the FOMC meeting in mid-September.

My sense is that all of this economic data will be good enough for the Fed to start getting out of the QE business at next month’s meeting. Unless we see some fresh signs of weakness in the economy, which in unlikely, I don’t see any reasons why the Fed shouldn’t move towards getting rid of the QE program.

Sheraz Mian
Director of Research

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