By Caroline Valetkevitch
NEW YORK, June 16 Stock investors eager to hear
from the Federal Reserve about its plans for continuing economic
stimulus may get some soothing words from the U.S. central bank
The Fed is unlikely to tip its hand about when it might
begin to scale back its bond-buying program, but policymakers
still may be inclined to try to tamp down recent volatility in
financial markets with some mention of the issue.
The rally in stocks stumbled and Treasury bond yields rose
to 14-month highs following Chairman Ben Bernanke's comments
that the Fed may decide to begin scaling back its quantitative
easing in the next few policy meetings if the economy improves.
As part of its quantitative easing policy, adopted more than
four years ago, the Fed has been buying Treasury and other bonds
each month to keep interest rates low and promote growth.
Interpreting Bernanke's words and recent signs about the
economy has roiled markets since then. The Dow industrials
climbed 200 points in eight of the 17 sessions since Bernanke's
comments, and its daily average swing has been 191.5 points.
Stocks ended a third negative week in four last week. The
Dow fell 1.2 percent, the S&P 500 slid 1 percent and the Nasdaq
lost 1.3 percent.
"What (Bernanke) has done is create what I call an early
summer market storm, not a huge one but enough to cause people
to become a little nervous," said Fred Dickson, chief market
strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.
This week might offer a bit more clarity, he said, but
probably not the details many investors are hoping for. Still,
analysts said, the Fed may want to say something to remove some
of the markets' anxiety.
The markets have priced in a sea change and seem to think
that rates are going up soon, said Stephen Massocca, managing
director at Wedbush Equity Management LLC in San Francisco. But
"I think the Fed is not going to want that to be the market's
The news may be that any change is going to be gradual, he
Comments from Fed policymakers in recent weeks have added
fuel to the guessing game. Views have ranged from favoring
continuing the stimulus policies for some time to starting the
process of winding down quantitative easing in the near term.
But Bernanke's views hold the most weight, so investors will
likely be on edge awaiting his comments. The Fed chairman is due
to give a news conference at 2:30 p.m. EDT (1830 GMT) on
Wednesday shortly after the Fed's policy committee ends a
two-day meeting and issues a statement.
Although earnings have taken a back seat to Fed talk,
forecasts for second-quarter profits have come down in recent
weeks. Growth is forecast at 3.2 percent, down from an April 1
forecast of 6.1 percent, and negative preannouncements have
outnumbered positive ones by a ratio of 6.9 to 1, according to
Thomson Reuters data. That would be the most negative ratio
since at least 1996.
Investors worry speculation about the Fed's course alone may
have been enough to spark the long-feared pullback in stocks,
which have rallied for most of this year. Even with recent
losses, the S&P 500 is up 15 percent for the year to date.
The benchmark index is down 2.5 percent since May 21, but
there have been short-lived rallies in that period.
Also the gains in bond yields since Bernanke's comments
caused investors to rotate out of high-yielding dividend stocks.
Dividend stocks had been among the market's leaders as investors
favored those shares over fixed-income securities in a low
The Dow shot up 200 points and scored its best day since
Jan. 2 after the U.S. employment report for May showed 175,000
jobs were created, a positive sign but not strong enough for the
Fed to abandon stimulus efforts to aid the economy.
"As we see mixed signals in terms of economic growth from
across the globe, a marginal tapering can have significant
effects," said Bucky Hellwig, senior vice president at BB&T
Wealth Management in Birmingham, Alabama.
"What would happen if the tapering is too soon, I think, is
that it puts risk into financial assets, both equities and
Among this week's economic reports, the Consumer Price
Report for May is due on Tuesday along with data on housing
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