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Published On: Sun, Jun 16th, 2013

The Advance: 17th – 21st June 2013

The upcoming week of trading is likely to revolve around the outcome of the Federal Reserve’s meeting which is scheduled to run from Tuesday through Wednesday, with an announcement from Ben Bernanke once the discussions have concluded. While the central bank are unlikely to divulge too much information, they will want to put a halt to the recent declines in stocks on the back of so much uncertainty which was caused by the Fed’s chairman and his comments back on May 22nd.

Since then stocks have slid in three of the four weeks, with last week completing the hat trick of declines. The DJIA declined by 1.2%, the NASDAQ by 1.3% and the broader S&P 500 by a flat 1%. While the Federal Reserve maintains that its primary concern is and always will be interest rates and balancing the economy as a whole, they will be under no illusions when it comes to the scrutiny that investors will place on their words.

While we only expect a few words focused on the Federal Reserve’s four year old bond-buying program, we do anticipate that they will be very carefully orchestrated after the havoc that Bernanke’s recent off the cuff remarks had on the global stock market.

Many analysts predict that the US central bank will not begin any sort of tightening for at least a few months, citing the impact it would have on the markets and the knock on effect that would have on the rest of the US economy. Buck Hellwig, the senior vice president at BB&T Wealth said the following during a recent interview with Reuters: “As we see mixed signals in terms of economic growth from across the globe, a marginal tapering can have significant effects… What would happen if the tapering is too soon, I think, is that it puts risk into financial assets, both equities and bonds”.

If Mr Hellwig is correct with his appraisal of the situation, which would be the logical result of an early tightening of the belt from the Fed, we could very well see sentiment, volume and general participation in the markets hit with bulls essentially being sidelined.

In the unlikely event that the Federal Reserve’s comments don’t lead to a shift in investor sentiment (one way, or another), there is still the Consumer Price Report and New Housing reports which are due on Tuesday to act as catalysts. Realistically however, the statement that Ben Bernanke makes at the conclusion of the meeting on Wednesday will define not only the rest of the week’s trading but potentially the next few months.

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About the Author

- Gregory previously worked for a leading financial news publication and is now assistant news editor of financialtrading.com.

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