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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • BLAME IT ON THE FED ...By WSS Research Desk 0 comments
    Jun 14, 2013 2:37 PM

    By Carlos Guillen

    After a very encouraging trading session yesterday, which had the Dow Jones Industrial Average up over 180 points, today investors are back to feeling somewhat unsecure about the Fed's actions with respect to tapering down the $85 billion a month bond purchases. However, the data presented today is not giving much support to this fear as it demonstrated that the U.S. economy is nowhere near where it needs to be for the Fed to begin winding down its monetary easing program.

    To begin with, consumer sentiment landing lower than expected, which ticked lower after making a strong gain in the prior month. The University of Michigan's Consumer Sentiment June result landed at 82.7, lower than the Street's expectation of 83.0, decreasing from the 84.5 reached in May; that was the highest level since July 2007 when it was 90.4. Confidence eroded the most among lower-income households, which are more likely to report worsening overall financial prospects than higher-income households. In general, consumers were less optimistic about job prospects in early June, expected smaller gains in the value of their homes, and judged the probability of stock price increases somewhat below last month's level. However, perhaps a bit encouraging was that the index of expectations six-months from now, which more closely projects the direction of consumer spending, rose to 76.7 in June from 75.8 the month before.

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    Another report today showed prices paid to producers climbed after two months of declines. According to the Department of Labor, the Producers Price Index (PPI) in May increased month-over-month by 0.5 percent; this compares with the Street's consensus estimate calling for a 0.1 percent rise. Because retailers try to pass costs on to consumers as soon as possible, the PPI can provide hints on future trends for the CPI, which has also been running at slow rates. Excluding food and energy contributions to the price index, core PPI increased month-over-month by 0.1 percent, matching economists' average forecast.

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    On another bit of negative economic data today, the Fed delivered worse than expected industrial production and capacity utilizations data. According to the U.S. Federal Reserve, industrial production during May remained unchanged month-over-month, worse than the Street's consensus estimate calling for a 0.1 percent month-over-month rise. In the same time range, capacity utilization decreased from 77.7 percent to 77.6 percent, landing lower than the Street's consensus estimate of 77.8 percent. It is now becoming more evident that the slowing growth in China and the recession in Europe are having a worsening negative effect here at home.

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    In all stocks are continuing sink as the session progresses, as investors appear to be sensing a retrenchment of Fed monetary easing; however, it is just not well founded, at least based on the economic data out today; the U.S. economic is simply not improving fast enough for the Fed to begin winding down. As it stands, earlier today the IMF kept its forecast for a slight cooling of growth this year to 1.9 percent, from 2.2 percent last year, but cut its estimate for 2014 growth by 0.3 percentage points to 2.7 percent. Inflation, the fund said, is expected to remain relatively subdued over the next year. So with subpar growth and tamed inflation, the Fed should maintain course.


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