Yet many of them are spending a lot of energy trying to get inside the head of Ben S. Bernanke, the Federal Reserve chairman, and making bets on what they think he sees.
Stocks, bonds and currencies around the globe had a chaotic week as traders and strategists reassessed how Mr. Bernanke viewed the economy and whether those views would prompt the central bank to pull back on the bond buying that has supported markets in recent years.
“The market is looking at every piece of incoming data through Fed sunglasses,” said Rebecca Patterson, the chief investment officer at Bessemer Trust. “It’s not what does this data mean, it’s what you think the Fed thinks about this data.”
The middling jobs report on Friday appeared to soothe the nerves of investors for the moment.
Many on Wall Street agreed that the 175,000 jobs created in May was strong enough to keep the economy on a steady path but not so strong as to encourage the Fed to let up on its stimulus sooner than expected. The Fed can afford to be patient.
With this interpretation prevailing, stocks rose in trading on Friday. The benchmark Standard Poor’s 500-stock index ended up 1.28 percent to close out a week that also experienced one of the worst days of the year.
The sharp movements in stocks, bonds and currencies this week reflect the peculiar anxiety felt by investors. There is confusion over when and by how much the central bank may withdraw its support. But even if there were clear signals about a pullback, there is little precedent for what kind of effect those policies will have on the markets. A decision to pare back the stimulus could be a good thing if the economy is growing fast. But it could also throw markets into disarray given the degree to which investors have come to rely on the Fed’s bond-buying programs over the last five years.
All of which suggests that the markets could be in for a bumpy summer.
“This hasn’t really been seen at this scale ever,” said James Swanson, the chief investment strategist at MFS Investment Management in Boston. “We don’t know how they will get out of it,” he added, referring to Fed officials.
Central-bank watching is not a new sport on Wall Street. But for most of the last few years, many other events, including the European debt crisis and the prospect of a double-dip recession in the United States, have been at least as important as the Fed in driving markets. What’s more, the Fed had been steadily ramping up its bond-buying programs, not looking at cutting back.
The prospect of a reversal came to the fore on May 22, when Mr. Bernanke said in Congressional testimony that he and his colleagues might consider paring back their bond-buying programs “in the next few meetings” if the economy is showing signs of improvement.
As investors have speculated on what exactly Mr. Bernanke meant, and what might prompt him to act, the markets have been on a wild ride. The S. P. 500 experienced two consecutive weeks in the red for the first time this year as investors prepared for a future without support from Mr. Bernanke.
The bond market has experienced more violent swings because the Fed has supported the economy by buying government and mortgage bonds. In anticipation of the Fed buying fewer bonds, investors sold off all kinds of bonds, pushing up interest rates to their highest level in over a year.
Concerns over a Fed pullback persisted on Friday. Bond prices slumped, pushing the yield, which moves in the opposite direction, on the benchmark 10-year Treasury to 2.18 percent from 2.08 percent on Thursday.
Mr. Bernanke and his colleagues have made it clear that they are not planning to suddenly stop the bond-buying programs that have been so important to investors. Instead, they are likely to “taper” back the $85 billion in bond purchases they are making each month, and could step back up if the economy shows signs of flagging.
There is still significant disagreement on Wall Street about whether the economy will improve enough for Mr. Bernanke to begin this process.
Article source: http://www.nytimes.com/2013/06/08/business/daily-stock-market-activity.html?partner=rss&emc=rss
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