Stocks Up and Down, Fed Stays the Same

bernanke fomc meetingStocks were all over the board today as all indexes opened up in the green today as the Fed announced their plans to keep things "status quo." However, by the end of the day, markets closed with mixed feelings, having the Dow down almost 30 points, but both the S&P and NASDAQ up. The red closing for the Dow was very surprising, considering that it was up over 100 points at one point. More negative data, and and a rather "depressing" interview with Warren Buffett (I'll talk about later) brought down investor's confidence in the afternoon.

Today's economic data was also mixed. Durable orders came in much better than analysts expected and is now two consecutive months of positive growth. However, this can be very easily skewed by government spending as there is a lot of weight on aircraft and defense spending. However, new homes sales data came in far worse than many analysts expected. A reported 342K new homes sales were reported (360K expected), this will also most likely be revised to an even smaller number. Also, the number is less than last months number, which causes concerns for home owners.

So indeed the data is not sufficient to support a notion of a "recovering economy." The Fed discussed this fact in their report of their FOMC meeting. They still enjoy harping the tune "the worst is over", but are very careful to say that indeed we are bottoming. They agree that data confirms that we still show severe weakness in the economy and that there is still a lot of recovering to do before we see growth again. This is the "watered down" version, coming from our Federal Reserve, so I expect actual activity to be even worse.

The Fed also announced their plan to leave interest rates at essentially zero for the time being. To help fight climbing yields, they will also continue to purchase government notes and bonds, which they have now spent over $2 trillion already. To keep mortgage rates low, they will also continue to buy mortgage backed securities. Such continual Fed buying, mixed with government debt spending is creating an elixir of destruction, and is something that will need to be dealt with at some point, but they aren't concerned about that now.

Financials were rather strong today, but I feel they still should remain weak. I would have pulled the trigger on some FAZ shares today, if I were not out of the office. Even after several days of down trading, the markets are still showing weakness. This could be just the beginning of a rather strong downturn. Morningstar has some great valuation tools for equities that you can try free, Morningstar - Valuable insights and innovative portfolio tools. Get the Morningstar advantage with a FREE 14-day trial membership!. I expect some serious downward momentum to kick into the next gear shortly. Happy Trading.

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