As summer temperatures rose, market analysts generated their own style of mid-summer madness with predictions ranging from imminent market corrections to confident optimism. Perhaps the variety of opinions was triggered by the deluge of economic data that hit the streets at the end of July. The market’s moves during the month lacked the coherence that stock traders like to see, and the pending monetary policy announcements from the Federal Reserve further ignited anxious speculation. The good news that unemployment had fallen to a six-year low failed to ignite the enthusiasm we might have expected, and earnings disappointments from big companies like Amazon and Boeing helped drive the Dow Jones Industrial Average down at the end of the fourth week of July – although the S&P 500 recorded little change and the Nasdaq composite showed a slight gain.
Here are some of the month’s key talking points.
Market Correction Ahead or Not?
No one can predict the market’s performance, but it doesn’t stop the investment community from trying. It’s been a long time since we saw a real correction in stock market prices. On that basis alone, some analysts think that we are overdue for one. However, basing projections on historical data is dicey. The current bull market has operated outside historical norms and has been unusually strong and stable. But that doesn’t mean that there won’t be short-term shifts downward. These might happen and, if they do, some market commentators urge investors to look past them in favor of long-term gains. Many analysts remain confidently bullish, pointing to the overall trend of solid earnings for the second quarter of 2014 – with notably positive results from Starbucks and Facebook despite disappointing news from Amazon and a few other big corporate entities.
Will Rising Interest Rates Skewer U.S. Stocks?
Much of the speculation about a possible market correction comes from investors trying to anticipate the timing of the tapering off of the Federal Reserve’s treasury and bond-buying program, which has kept interest rates at historic lows. Foes of the Federal Reserve’s current monetary policy have been muttering about how a possible interest rate increase might give the stock market an unwelcome jolt. Some believe near zero interest rates have helped artificially inflate stock prices. They believe that other assets will become more attractive when interest rates increase, and companies that have reached historically high profit margins will have trouble offering investors the higher returns needed to compete.
Month-end IPOs Show Optimism
The chatter regarding Fed policy and the impact of recent economic data almost drowned out the excitement generated by a host of initial private offerings underway during the final days of July. With more than 20 companies poised to go public – including Synchrony Financial (which is being spun off by General Electric with the aim of raising more than $3 billion) – it will be interesting to see how investors respond to these new equity opportunities.
The comments above are intended as general observations only. They are not intended to be a substitute for advice from professional investment and tax advisors.