Traders focused on Fed tapering, not economy: analystsAFTER last week's tumble, the Dow Jones Industrial Average may steady itself to hit yet more all-time highs barring surprises from the Federal Reserve.mini storageA jittery market has become an excitable market. In the 2013 rally, investors have ceased worrying about the next crisis and started to worry about missing out on the next rally.Despite losing ground last week, the Dow is up nearly 20 per cent this year and is only about 2 per cent from its record highs. Almost every time the index took a big hit last week, it drew buying from bulls instead of the pile-on of bears market watchers have come to expect.Second-quarter earnings season is far from a runaway success, with companies warning of slowing demand. But investors had apparently expected worse. More than two thirds of the 446 companies from the S&P 500 who have reported earnings have exceeded the Wall Street target.By and large, the jobs market is at its strongest since before the Great Recession; even if new jobs are not appearing, layoffs are less common.Most analysts say the recent downdraft on the stock market had little to do with economic or corporate outlook. Rather, traders are making odds on the timing and pace of the Federal Reserve's plan to withdraw its stimulus programme.On sessions when the case for "tapering" appears to strengthen, mortgage and Treasury rates rise while gold miners, financial and home-building shares lead the stock market down. On sessions when the case for keeping rates low is strengthened, the fortunes of all those investments are reversed.Why gold? The Fed's stimulus policy effectively increases the supply of dollars, hurting the value of the greenback, which has an inverse relationship with the value of gold. Benefits to home builders and banks from Fed bond buys is intuitive: every time the central bank pushes down mortgage rates, it causes a rush of borrowing. The banks make money on the loans and the builders make money on the homes.That's why, even if this week's home sales data reveal stark gains, the stock market is more likely to react to the seconself storageary effect of the data - how it affects the outlook to Fed policy - than to the data itself.Last week, the pendulum swung against the home builders, the banks and the gold miners.The Fed's parade of speakers sounded like they had coordinated their message, said Quincy Krosby at Prudential Financial. They all sounded the same warning to the market, she said: "get ready for tapering". With Fed regional presidents and board members set to speak almost every day this week, "markets are going to want to see if any one of them deviates from what looked like a script", Ms Krosby said."We see no signs of cold feet at the Fed and continue to expect a September tapering," said analysts at brokerage Barclays. In the short term, the Fed's policy shift is likely to dominate all stock market discussion."Earnings season comes to an end by the middle of next week, and I would expect investors and fund managers to start focusing on the upcoming Jackson Hole summit," said Oliver Pursche at Gary Goldberg Financial Services. "That's going to increase volatility because now you have no news and it's just speculation."But some analysts say the market's relationship with the Fed will soon return to the intermittent obsessiveness of the past. With so many factors priced into modern markets, not even the Fed can hold the market's attention forever.This week, July retail sales, which is likely to show marginal growth, may not spark much of a reaction. Nor will traders parse every sentence in earnings reports from big retailers. Once the Fed's new policy is established, however, these are exactly the kinds of reports that may dictate stocks' direction in the last quarter of the year."In prior periods correlation (between Fed policy and stock returns) has consistently declined following Fed policy normalisations, and fundamentals and valuation appear to have a more significant impact on returns," said the Barclays analysts. "Going forward, in a post quantitative easing world, earnings will be the most likely driver of stock performance."In one of the last weeks of a quantitative easing world, the Fed is all that matters.迷你倉
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