Taper Talk Ping-Pongs Stock Market On Friday

Although there were some interesting reports for investors to digest on Friday, the conflicting views of FOMC members Charles Plosser and James Bullard – as to whether to start cutting back the Fed’s bond-buying program in September – steered the direction of the stock market through the session.

As lunch hour approached, the major stock indices began to swoon in reaction to remarks made by Philadelphia Federal Reserve President Charles Plosser. During a speech at the Fifth Annual Rocky Mountain Economic Summit in Jackson Hole, Plosser expressed his opinion that the Fed should start its widely-dreaded “tapering” in September. After St. Louis Federal Reserve President James Bullard voiced his opposition to a September taper, during an interview at the same event, the stock indices headed back northbound for a late-day rally. (This event should not be confused with the Tenth District Economic Symposium in Jackson Hole on August 22-24, which Ben Bernanke will not attend.)

The day’s economic reports, which were upstaged by the taper talk, included the preliminary Thompson Reuters / University of Michigan Consumer Sentiment Index for July, which dipped to 83.9 from the June reading of 84.1. Economists were expecting an increase to the range between 84.7 and 85. The taper talkers also stole the spotlight from the Labor Department’s Producer Price Index, which rose 0.8 percent in June, for its biggest monthly gain since September of 2012. Economists were expecting a 0.5 percent increase.

JPMorgan (JPM) beat analysts’ earnings estimates with its quarterly earnings per share of $1.60, compared with estimates of $1.44. Wells Fargo (WFC) also won at “beat the number” with EPS of 98 cents, compared with expectations of 93 cents. Webster Financial (WBS) met the EPS estimate of 48 cents but fell $700,000 short on the top line, reporting revenue of $147.1 million.

The Dow Jones Industrial Average (DIA) picked up 3 points to finish Friday’s trading session at 15,464 for a 0.02 percent advance. The S&P 500 (SPY) advanced 0.31 percent to a new record-high close at 1,680.19.

The Nasdaq 100 (QQQ) climbed 0.64 percent to finish at 3,079. The Russell 2000 (NYSEARCA:IWM) rose 0.32 percent to end the day at a new record-high closing level of 1,036.52.

In other major markets, oil (USO) jumped 1.49 percent to close at $37.56.

On London’s ICE Futures Europe Exchange, September futures for Brent crude oil advanced by 90 cents (0.84 percent) to $107.94/bbl. (BNO).

August Gold Futures advanced by $3.50 (0.27 percent) to $1,283.40 per ounce (GLD).

Transports went off the shoulder on Friday as the brown truck got a flat, with the Dow Jones Transportation Average (IYT) declining 0.47 percent. United Parcel Service (UPS) sank 5.8 percent after lowering its expectations for second quarter earnings as well as its profit forecast for the year. By no coincidence, I received a phone call from a telemarketer for UPS this morning. They are obviously trying hard to get as close as possible to analysis’ expectations of $4.98 per share in annual earnings.

In Japan, stocks made modest gains as the yen weakened as far as 99.29 per dollar during Friday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average advanced 0.23 percent to 14,506 (EWJ).

In China, stocks gave up some of Thursday’s gains after the nation’s Finance Minister, Lou Jiwei admitted that he expects that the government will miss its 7.5 percent target for economic growth for 2013 and by the end of the year China’s economic expansion rate for 2013 will be 7 percent. In a press briefing on Thursday, he seemed even less optimistic when he said: ”We don’t think 6.5% or 7% will be a big problem”. The Shanghai Composite Index sank 1.62 percent to close at 2,039 (FXI). Hong Kong’s Hang Seng Index fell 0.75 percent to finish the session at 21,277 (EWH).

It was surprising that any of the major European stock indices made it into positive territory on Friday. Eurostat reported that between April and May, industrial production in the Eurozone declined by 0.3 percent. In the greater 27-nation European Union, industrial production fell by 0.6 percent during the same period. Between May of 2012 and May of 2013, the decline amounted to 1.3 percent for the Eurozone and 1.6 percent for the EU27. France had its credit rating cut by one level from AAA to AA+ by Fitch Ratings on Friday (EWQ).

The Euro STOXX 50 Index finished Friday’s session with a 0.24 percent decline to 2,674 – faltering in the struggle back toward its 50-day moving average of 2,707. Its Relative Strength Index is 53.00 (FEZ).

Technical indicators reveal that the S&P 500 continued rising above its 50-day moving average of 1,632 after finishing the week with another record-high close at 1,680.19. Its Relative Strength Index increased from 65.49 to 66.62. The MACD continues to rise above the zero line and the signal line finally broke above the zero line, suggesting a continued advance.

For Friday, most sectors were in positive territory, except for the industrial sector and the materials sector, which declined by 60 percent and 35 percent, respectively. The financial sector took the lead, with a gain of 0.69 percent.

Consumer Discretionary (XLY): +0.47%

Technology: (XLK): +0.06%

Industrials (XLI): -0.60%

Materials: (XLB): -0.35%

Energy (XLE): +0.56%

Financials: (XLF): +0.69%

Utilities (XLU): +0.31%

Health Care: (XLV): +0.61%

Consumer Staples (XLP): +0.02%

Bottom line: The stock market’s obsession with the Fed’s plans to phase-out quantitative easing became obvious on Friday, as the major stock indices fell and rose in reaction to opinions expressed by FOMC members concerning a taper timetable.

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