The Markets

It was like watching a game of telephone where one child speaks into another child’s ear and that child speaks into another child’s ear and, by the time the last child repeats the original statement, it has transformed into something completely different. 

Chairman Ben Bernanke stepped up to the microphone at the press conference after the Federal Open Market Committee’s policy meeting and said: 

“As I mentioned, the current level of the federal funds rate target is likely to remain appropriate for a considerable period after asset purchases are concluded. To return to the driving analogy, if the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of (bond) purchases. However, any need to consider applying the brakes by raising short-term rates is still far in the future. In any case, no matter how conditions may evolve, the Federal Reserve remains committed to fostering substantial improvement in the outlook for the labor market in a context of price stability.” 

His statements filtered through analysts and managers, through blogs and media outlets and, by the time it reached investors, they heard this: sell. The message rippled through stock, bond, and other markets around the world. As markets fell, interest rates rose, particularly in countries like Indonesia, Brazil, Mexico, Turkey, Russia, and Poland. A Bloomberg report cited in the Washington Post stated the People’s Bank of China injected about $8.2 billion into China’s financial system in an effort to keep interest rates low. 

Investors’ fears were reflected in the CBOE Volatility Index (VIX), which is also known as the investor fear gauge. It measures the market’s expectations for volatility during the next 30-day period. It started the week at 10.2 percent and finished the week at 19. According to a Citigroup equity strategist who was quoted in The Wall Street Journal, “…there are much higher probabilities for market gains when the VIX is sitting between 10 and 15 than when it is in the 20-25 range…” Will markets settle? Or, will volatility continue? Time will tell.

 
 
 

Lexington Wealth Management