Sep-Taper Is On Track: Here Is What You Need To Know

Photo: Getty/Alex Wong

Volatility spiked after after the Federal Reserve published the minutes of its July Federal Open Market Committee (FOMC) meeting.

First, the scoreboard:

  • Dow: 14,897.5, -105.4, -0.7%
  • S&P 500: 1,642.8, -9.5, -0.5%
  • Nasdaq: 3,599.7, -13.8, -0.3%

And now, the top stories:

  • Stocks and bonds plunged during the moments following the release of the Fed’s FOMC minutes. At one point the Dow was down by as much is 113 points. And in late trading, stocks actually turned positive for a few minutes before falling again.
  • For the most part, the FOMC minutes reflected more of the same. During the July meeting, some Fed members urged patience regarding the tapering of the Fed’s monthly purchases of $85 billion worth of bonds. Other favored tapering soon. But generally speaking, the members were in favor of the timeline offered by Fed Chairman Ben Bernanke, who floated the idea of tapering in September. Of course, all of this would continue to be conditioned upon all of the economic data we get up until the September FOMC meeting.
  • Here’s exactly what they said about Bernanke’s timeline: “…almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June postmeeting press conference and in the July monetary policy testimony.
  • “The July FOMC minutes indicate a September tapering of QE is likely as long as August employment does not meaningfully disappoint,” tweeted Deutsche Bank’s Joe LaVorgna.
  • Here’s what the FOMC saw in the housing market: “While recent mortgage rate increases might serve to restrain housing activity, several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates, variously citing pent-up housing demand, banks’ increasing willingness to make mortgage loans, strong consumer confidence, still-low real interest rates, and expectations of continuing rises in house prices.” This assessment was confirmed by today’s housing data and homebuilder earnings announcement.
  • Existing homes sales in July jumped 6.5% to an annual rate of 5.39 million units, beating expectations. “Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines,” said Lawrence Yun of the National Association of Realtors.  “The initial rise in interest rates provided strong incentive for closing deals.  However, further rate increases will diminish the pool of eligible buyers.”
  • American homebuilder Toll Brothers expressed similar sentiment in its Q2 earnings announcement today. “We believe the recovery is real and we are in the early stages of the rebound,” said CEO Douglas Yearley. “Our average sales contracts per community are about where they were in 1997-1998, several years into the previous cyclical recovery. From there, over the next seven years, through August 2005, a period when mortgage rates averaged between 5.8% and 8.1%, sales contracts per community continued to increase, eventually peaking at twice that pace.” The company’s earnings beat expectations. Shares of TOL ended flat for the day.
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