Fed's tapering finally hitting markets
The bears are lurking. Weak earnings, rapidly declining oil prices, flat wages, and a strengthening dollar has volatility up and pessimism growing.
Paul Vigna, reporter for The Wall Street Journal, says he’s not surprised. “You knew this was coming. Quarter, after quarter, after quarter, revenue growth was weak. It was financial engineering. It was a lot of keeping costs low, keeping margins high and that had been petering out for a while too.”
Apple (AAPL) earnings aside, companies are having a much tougher time generating revenue. “The global economy is not doing so hot. The U.S. economy is doing better, but it's not going gangbusters. You may start seeing some real weakness,” says Vigna.
While the markets did suffer some steep drops last year, they were always able to rebound. Vigna says what’s different now, is the Fed has taken its foot off the pedal. “A lot of it just comes out to market perceptions and the fact that a few months ago they were spending $60 billion a month. They wound that down. Yes, they’re keeping interest rates low but they’re not doing QE anymore.”
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Vigna thinks the change and pace the Fed used to implement policy took some time to hit the markets. “They did it very gingerly, very tenderly. They don’t want to shock the markets so they moved very slowly, but they moved. And that has affected the dollar, the market (bottom) and equities. Equities have just been the last to feel these things”
As for what’s next for the Fed, Vigna thinks we could see a modest hike in interest rates. “What I think they might do is a token raise. Just to sort of maintain credibility. They’ve been talking about it for so long. Even if they do rise, they’re not going to 3% overnight. They’re going to move very slowly, very incrementally.”
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