Previously, European and Federal Reserve leaders have turned markets around with stimulus measures and bailouts for deeply indebted institutions. Investors also worry that the economic and financial mess could get tangled up in the building U.S. election campaign. Politics could prevent Congress from acting, leaving the problem to the Fed and Europeans.
Investors again are calling for the Fed to pump billions of fresh dollars into the financial system by purchasing massive amounts of bonds, an approach known as quantitative easing. It would be the third such bond-buying program since 2008, so investors call the idea QE3. The problem is that central banks’ main method of stimulating the economy is to lower interest rates. With rates already at historic lows, some economists question how much good more intervention can do.
With the potential of QE3 on the horizon, stocks continued to lose ground for the fourth consecutive day after factory orders slowed in economic reports. The Dow retreated 17 points, or -0.14%, to $12,101.46 in late-afternoon trading. The Standard & Poor’s 500-stock index was up barely at 0.01% to $1, 2748.16. Meanwhile, the Nasdaq Composite increased 13 points, or 0.46%, to $2760.01. Industrial and financial stocks fell the most among the S&P 500’s 10 sectors. J.P. Morgan Chase (JPM) slumped -2.82%, while Caterpillar, (CAT) stock closely tied to growth prospects, also fell. The Stoxx Europe 600 fell -0.5% in choppy trading, while Germany’s DAX slipped -1.2%.
Chesapeake Energy (CHK) rose 6.10% and was the biggest gainer on the S&P 500 after the company agreed to replace four members of its nine-member board with candidates proposed by the embattled oil-and-gas company’s two largest shareholders, Southeastern Management Co. and activist investor Carl C. Icahn. Facebook (FB) also fell after analysts projected a target price of $25 and expected the stock to underperform for the year. Auxilium Pharmaceuticals (AUXL) jumped +16.02% after the company announced positive test results from a trial of its treatment for Peyronie’s disease.
Thomas Doherty is a student at Villanova University majoring in Finance and Economics. All questions and comments can be sent to Thomas@KeeneOnTheMarket.com