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Jonathan Parr
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Jonathan Parr, currently a CFA level II candidate and a financial professional for 12 years, has earned a living as a futures trader, a financial advisor, and an options market maker. Passionate about investing and the markets, Jonathan is currently seeking opportunities in consulting and/or... More
  • So Summers Is Out - And The Week Ahead 0 comments
    Sep 16, 2013 10:37 AM

    As we approach the week ahead, nearly everybody has Wednesday circled on their calendar. That's the day the FOMC minutes are released, and financial markets are seeking clarity concerning the future of the Federal Reserve's asset purchase policy. Monday and Tuesday were expected to be quiet days as that meeting trumped all else. But as is often the case, reality threw us a curveball a few hours ago as markets reacted to an unexpected headline - "Larry Summers withdraws from Fed Chairman consideration".

    The market's knee-jerk reaction was as expected. Both equity and bond futures caught a bid as more dovish candidates become the frontrunners for the Fed chair. Janet Yellen appears to once again be the candidate de jour, and the markets have rallied in approval as the easy money tap seems ready to flow.

    But are equities a good buy here? The bonds have been selling off since May while the equities continue to reach new highs. Should we be buying equities on the "Summers Withdrawal" headline? I suggest the wait and see approach. Ben Bernake is still the Fed Chairman, and he has been very clear that some sort of tapering is in the cards. Bonds have been selling off since May, yet equities continue to rally, ignoring the effect of higher borrowing costs and a less accommodative policy. Although I try to refrain from the day to day crystal ball predictions, I expect Bernake to announce some sort of taper, and I expect a pullback in equities with the announcement.

    In addition to the Fed announcement, keep an eye on housing numbers and CPI, also due out this week. On Tuesday, we get CPI. We also get the homebuilders index. Although any market reaction is likely to be muted heading into Wednesday, the numbers may give us a hint of how rising interest rates are affecting home building. Look for confirmation early Wednesday when housing starts and building permits are reported, and on Thursday we'll see existing home sales.

    So a busy week has already started, and it's still Sunday. Keep your powder dry, and expect volatility ahead.

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