All markets took a sharp downward spiral after the Federal Open Market Committee (FOMC) minutes alluded to the possibility of bond purchases slowing, with one member in favor of slowing the program as early as June of this year, with the next scheduled release on June 18-19. Members of the Fed are apparently open to scaling back the $85B/month Treasury and Mortgage bond buyback program if the economy continues to do well, though Ben Bernanke, the Chairman of the Federal Reserve, voiced that it may be too soon.
Since November, the United States economy has added an average 208,000 jobs, up from an average of 138,000 in the six months prior to November. Unemployment has fallen to a four-year low to 7.5%, though it is still at an abnormally high level, far from where they would like it to be. Sectors that are more elastic to interest rate changes have shown positive results when interest rates have been kept low, a testament to the positives brought forth by the program.
Members of both sides of Quantitative Easing (QE) seemed to be divided in many of the large issues, with QE backers stating the risks of deflation, while QE detractors warned about the markets creating false gains leading to a new asset bubble. They do believe, however, that real Gross Domestic Product (GDP) growth would outpace the “potential output of 2013”, and continue realizable growth into 2015. Longer-run term inflation remaining stable coupled with a negative outlook on expected energy prices, led the FOMC to believe that inflation will remain flat through 2015. Participants outside the fed had mixed feelings on these statements, raising concerns that although we are growing as an economy, we seem to be gradually slowing down and taking our foot off of the pedal.
Consumer spending has been up, with some areas of the country showing stronger figures than others. The policies created by the Fed seem to have created significant strides in some departments, with equity and housing prices on an upward trend juxtaposed with expanding credit health, but they seem to be far outpacing job placements, a possible problem for the future.
The uncertainty of what to do in the coming months and the instability between Fed members put the markets into a frenzy today (5/22/2013). The S&P 500, Dow Jones and NASDAQ index fell 83 basis points, 52 basis points, and 111 basis points, respectively. Most of UASBIG Portfolio took a hit, with the only two companies staying positive on the day being Spirit Airlines (SAVE), up $0.29 or 0.99%, and Bank of the Ozarks (OZRK), up $0.02 or .04%. The largest detractors of the portfolio today are Target Corp (TGT), Joy Global (JOY), and Amtrust Financial Services (AFSI), falling 4.01%, 3.61% and 2.95% respectively. All indices and most of the portfolio had been up early on the day before eventually nose diving.