As expected, the Fed didn’t adjust their policy interest rates and the market loved it.
The Dow Jones Industrial Average closed 331.62 points higher, or 2.94 percent, to close at 11,615.77. There was only one loser in the Dow today – Chevron, which lost 0.40 percent due to oil prices.
Crude oil fell by 2.77 percent to close at 118.64 per barrel in New York. Oil has now fallen more than 18 percent since is high one month ago.
Market Activity for August 5, 2008
As we have talked about all this week, we knew that the Fed wasn’t very likely to make any changes to interest rates. The question would be what their message would be. Their assessment was towards inflation risk and the key phrase of the day was “significant concern’ regarding inflation.
Markets were strong from the start as oil prices continued their slide. When the market got the announcement, the rally pushed higher as more investors believe that the Fed will tighten later this year to curb inflation.
Right now the market believes that there is a sixty percent chance that rates will rise by either 25 or 50 basis points at the next meeting on September 9th and an 75 percent chance rates that rates will be higher by the meeting in late October. Obviously there is a lot of data that will be released between now and then, but today’s market action reflects this current thinking. In short, it is widely expected that a tightening campaign is forthcoming.
The chart above shows the dramatic shift in the Fed Funds Target rate over the past five years. It’s amazing to look at the steep declines in contrast to the measured pace of tightening in the last campaign.
I mentioned in yesterday’s email that I thought it was likely that there could be three dissenters who wanted to raise rates. Only one dissenter came through, Richard Fisher, who has dissented for the past five meetings.
Here is the statement parsing from the Wall Street Journal.
On the earnings front, Proctor & Gamble (ticker symbol: PG) earned 0.80 cents per share this quarter (on a diluted, continuing operations basis), ahead of the 0.78 cents per share Street expectation. This was a 19.40 percent gain on a year-over-year basis, demonstrating their power to push commodity price input costs along through to the consumer. Surely, this is a mark of their strong brands.
Freddie Mac (ticker symbol: FRE) reported a quarterly loss this morning that was three times wider than analysts’ estimates and wrote down another $1 billion in subprime and low quality mortgage securities. They also announced they will slash their common stock (not their preferred stock) dividend at least 80 percent to raise additional capital. CEO Richard Syron said that the company is still committed to raising $5.5, but many believe these efforts will dilute the value of their common stock. Freddie’s common stock futures are down this morning and could weigh on investor sentiment throughout the day.
Have a great day!
The Dow Jones Industrial Average closed 331.62 points higher, or 2.94 percent, to close at 11,615.77. There was only one loser in the Dow today – Chevron, which lost 0.40 percent due to oil prices.
Crude oil fell by 2.77 percent to close at 118.64 per barrel in New York. Oil has now fallen more than 18 percent since is high one month ago.
Market Activity for August 5, 2008
As we have talked about all this week, we knew that the Fed wasn’t very likely to make any changes to interest rates. The question would be what their message would be. Their assessment was towards inflation risk and the key phrase of the day was “significant concern’ regarding inflation.
Markets were strong from the start as oil prices continued their slide. When the market got the announcement, the rally pushed higher as more investors believe that the Fed will tighten later this year to curb inflation.
Right now the market believes that there is a sixty percent chance that rates will rise by either 25 or 50 basis points at the next meeting on September 9th and an 75 percent chance rates that rates will be higher by the meeting in late October. Obviously there is a lot of data that will be released between now and then, but today’s market action reflects this current thinking. In short, it is widely expected that a tightening campaign is forthcoming.
The chart above shows the dramatic shift in the Fed Funds Target rate over the past five years. It’s amazing to look at the steep declines in contrast to the measured pace of tightening in the last campaign.
I mentioned in yesterday’s email that I thought it was likely that there could be three dissenters who wanted to raise rates. Only one dissenter came through, Richard Fisher, who has dissented for the past five meetings.
Here is the statement parsing from the Wall Street Journal.
On the earnings front, Proctor & Gamble (ticker symbol: PG) earned 0.80 cents per share this quarter (on a diluted, continuing operations basis), ahead of the 0.78 cents per share Street expectation. This was a 19.40 percent gain on a year-over-year basis, demonstrating their power to push commodity price input costs along through to the consumer. Surely, this is a mark of their strong brands.
Freddie Mac (ticker symbol: FRE) reported a quarterly loss this morning that was three times wider than analysts’ estimates and wrote down another $1 billion in subprime and low quality mortgage securities. They also announced they will slash their common stock (not their preferred stock) dividend at least 80 percent to raise additional capital. CEO Richard Syron said that the company is still committed to raising $5.5, but many believe these efforts will dilute the value of their common stock. Freddie’s common stock futures are down this morning and could weigh on investor sentiment throughout the day.
Have a great day!
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