Markets sold off slightly on Wednesday as there were few surprises in the FOMC announcement. As expected, the Federal Reserve announced the end of Quantitative Easing (QE), and maintained its pledge to keep interested rates low “for an extended period of time.” Dr. Yellen indicated in her press conference that the Fed saw better economic conditions and stronger employment growth in the years ahead, and believes that inflation will remain in check for some time. Stocks did sell-off on the typical emotional overreaction when the statement was released, but rebounded to close with slight losses. Market internals continue to point to a growing performance divergence within various sectors, as the Materials sector fell 1.26%, while Financials gained slightly. Within the Dow, DuPont (DD) shed 1.69% on weaker than expected earnings and outlook, while Pfizer (PFE) and Johnson & Johnson (JNJ) rose sharply on strong earnings reports. So far, with nearly 80% of S&P 500 constituents reporting Q3 earnings, over 72% have beaten earnings forecasts, supporting our expectations that, as a whole, earnings will rise about 10% year-over-year this past quarter.
As predicted, investors quickly moved past the FOMC announcement and turned their focus on Thursday morning’s first read of third quarter GDP data and jobless claims. Third quarter GDP is shown as having risen 3.5%, ahead of expectations (consensus was 3.1%). Inflation remained low, rising a mild 1.3%, although we remind investors that the recent fall in gasoline and oil prices has had a meaningful impact on this figure and we would therefore expect a real inflation number to average closer to 2% once commodity prices stabilize. The broader question that needs to be answered, and will have a much greater impact on our economy, is going to be job growth. Specifically, while jobless claims (which came in at a relatively low 287,000) and the unemployment rate continue to fall, the key to stronger growth and the eventual return of inflation is strong high-wage employment growth. As we all know, so far the employment growth has predominantly been in the lower end of the market.
Make sure to tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM (following the Rutgers game) and Sunday at 11:00 AM on WOR 710 AM Radio to hear a wonderful and very insightful interview with Callista Gingrich (Newt Gingrich’s wife), an important discussion between Gary and Oliver about the real risks of owning bonds if interest rates don’t rise, as well as our ongoing market commentary. Visit www.ggfs.com for details.