U.S. stocks dropped more than 1% Wednesday as troubling economic data and uncertainty with the Federal Reserve’s bond buying program resurfaced.
Indeed, the continued and constant trickle of bad news on the strength of the economy suggests that the US economic environment is not strong enough to stand on its own. “Given the plethora of mostly negative news, the Fed needs to continue its bond-buying program for the foreseeable future. Moreover, the Fed needs to reinforce this to calm investors' nerves," said Steve Picarillo, Lead Analyst of Creative Advisory Group. Inc.
Two disappointing employment reports gave investors a reason to pause ahead of Friday’s official jobs numbers from the Bureau of Labor Statistics.
Early on Wednesday, the payroll processor ADP reported an addition of a startlingly low 135,000 private sector jobs in May, contrary to economists’ expectations of 160,000 positions. To add insult to injury, shortly after the opening bell, the Institute for Supply Management’s report on the services sector indicated a noteworthy reduction in employment.
The statistics released over the past few weeks, which have been reinforced by Wednesday's release, indicate that the US job market continues to show significant weakness. The sequester, exports and mixed business confidence is clearly having an impact on employment.
Meanwhile, investors continue to keep a keen eye on the Federal Reserve’s moves, especially as the central bank considers tapering, or a slowdown of its bond buyback program, which has helped to bolster up stocks.
The anticipation of the Federal Reserve’s policies is bubbling up with the release of the central bank’s Beige Book, which comments how the economy is growing at a “ modest to moderate pace.” Reserve Chairman Ben Bernanke has warned against "premature tightening", but also noted that the Fed could start tapering its purchases in the "next few meetings."
If the economy continues to improve, the Federal Reserve would taper its bond buying. Short-term investors/traders view this negatively, as they prefer the immediate liquidity injection.
“The market needs time to digest the information and statistics,” continued Mr. Picarillo. “Needless to say, the markets will likely remain choppy, as the mixed economic data surfaces.”
Nonetheless, it is important to remember that despite the selloff, the market remains strong. The Dow Jones Industrial Average is still up about 12% year-to-date. So there's no reason to hit the panic button, not just yet. To this analyst, the data has been more negative than positive. Accordingly, investors will remain pensive until the Fed's continued supportive actions become clear.
“While I don’t profess to know more that the experts at the Fed, the statics that have been released in the recent quarters suggest that the US economy is not strong enough to stand on its own. In other words, Mr. Chairman, this is no time to take the training wheels off,” Mr. Picarillo concluded his comments.
Creative Advisory Group, Inc. was founded by Steve Picarillo to house his various advisory efforts. Mr. Picarillo’s credentials can be found at www.stevepicarillo.com.
Steve Picarillo is an internationally known financial executive and author. Steve has spent most of his career on “Wall Street” as a lead analyst covering global financial institutions. Mr. Picarillo recently launched several businesses, including consulting services to large financial institutions, a cost savings consulting services focusing on small and mid-sized companies, and a franchise consulting business. Steve is also a branding expert, an expert on the global economic environment, and a motivational speaker.
Steve publishes several blogs with topics that include discussions on the economic environment and operating a business in this still uncertain economic environment. These newsletters will be distributed on a “ by request only” basis. To receive Steve’s blogs and articles, contact steve@creativeadvisorygroup.com with OPT IN as subject.
Related websites include www.stevepicarillo.com, www.creativeadvisorygroup.com and www.creativefranchisegroup.com.
Company Name: Creative Advisory Group, Inc.Contact Person: Steve Picarillo
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Phone: +1 212 810 2164
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Website: www.creativefranchisegroup.com
Source: www.abnewswire.com
