US markets brace for budget debate

SEEING RED::Euphoria over the Fed’s decision to keep its bond-buying program was later overshadowed by the rising acrimony between Republicans and the White House

AFP, NEW YORK

Sun, Sep 22, 2013 - Page 15

US stocks have weathered plenty of recent storms, including the threat of a US military strike on Syria, speculation about lower US Federal Reserve stimulus and weak jobs reports.

By week’s end, markets were eyeing the latest potential threat: a US political showdown that raised the prospect of a possible government shutdown.

Rising acrimony in Washington put a damper on a market that had cheered a surprise move by the Fed earlier in the week to keep alive maximum monetary support for at least a little longer.

The Fed decision immediately pumped up markets, sending the Dow and S&P 500 to all-time highs on Wednesday. The indices retreated somewhat in subsequent days, but still closed the week out with net gains. The Dow Jones Industrial Average tacked on 75.03 (0.49 percent) to 15,451.09. The broad-based S&P 500 rose 21.92 (1.3 percent) to 1,709.91, while the tech-rich NASDAQ Composite Index put on 52.55 (1.41 percent) to 3,774.73.

The week’s highlights in corporate news included banking giant JPMorgan Chase’s US$920 million settlement with several government agencies over last year’s London whale trading debacle. Shares of the bank, the nation’s largest in terms of assets, recovered somewhat on Friday after falling 1.2 percent on news of the fines.

Apple also won attention as the company’s latest generation of smartphones hit stores on Friday. Although reviews of the launch had been tepid, consumers worldwide flocked to Apple stores to purchase the gadgets. Shares ended higher on the week.

However, it was the Fed that dominated much of the week, not only because of the news on quantitative easing, but because of continued speculation on who would be picked as the next chairman.

Markets were lifted early in the week on the belief that the new front-runner for the job, Feb Vice Chairperson Janet Yellen, would be more dovish than former US Treasury secretary Larry Summers, who withdrew his candidacy on Sept. 15.

Heading into Wednesday’s finale of a two-day meeting of the Fed’s policymaking committee, market watchers had been girding for the Fed to trim back its US$85 billion per month bond-buying program by perhaps US$10 billion to US$15 billion per month in recognition of an improving economy.

Instead, the Fed kept the program at current levels, while cutting its economic growth forecast for this year and next, and expressing concern that the recent sharp rise in interest rates had already slowed the economy.

After the market’s applause died down, some market watchers expressed concern that the Fed had hindered its ability to guide markets. Analysts faulted poor Fed communication that they said harmed the institution’s credibility with investors.

Some market watchers also worried that the Fed’s move spelled bad news for the economy.

“Everyone’s just wondering: ‘Did they know something we don’t know,’” Kenjol Capital Management president Kenny Landgraf said, adding that the Fed’s move likely reflected reticence at the uncertain fiscal debate in Washington.

On Friday, House of Representatives Republicans passed a bill to fund the government, but attached a requirement to kill funding for the White House’s healthcare reforms. House Speaker John Boehner and other top Republicans harshly criticized “Obamacare” in championing the proposal, which stands little chance of becoming law.

US President Barack Obama meanwhile accused Republicans of risking a “tailspin” for the still recovering US economy by putting partisan zeal ahead of the good of the nation.

“If we don’t raise the debt ceiling — we are deadbeats,” Obama said in a fiery speech in Missouri.

Wall Street watched the proceedings with concern that could grow as the Oct. 1 budget deadline approaches.

“Watching Washington be dysfunctional is getting to be a regular pastime of Wall Street,” said Art Hogan, head of product strategy for equity research at Lazard Capital Markets. “We’ve seen in the past that it is not good for markets. The market does not like the unknown, and they certainly don’t like the government shutting down.”