Markets: When all else fails, blame the Fed

The Fed has become a scapegoat for local market volatility. Its fall yesterday remains somewhat inexplicable, especially in light of today’s gains.

A quip making the rounds of trading floors is that if a dealer gets a call from their fund manager to ask why the stocks are down, one should blame the Fed. Or rather, tell the fund manager or private client the market thinks the Fed will scale back its monetary stimulus program as soon as next month.

How else, says one trader speaking to Markets Spectator, can the 94 point, 1.9 per cent drop in the S&P/ASX 200 index yesterday be explained when there is, in his words, “green across the screen” today? The index today is up as much as 1.3 per cent.

If such an excuse can be proffered to explain market declines, then perhaps stocks are actually in better shape than many perceive. Telstra’s earnings today have certainly boosted spirits. Net profit was up 13 per cent and, more importantly, a second-half, fully-franked dividend of 14 cents has brought the telco's full-year payout to 28 cents. Telstra’s result will be comforting to investors who have kept the faith in businesses with dominant Australian market share.

Now the trading chatter is perhaps that Glenn Stevens’ rate cuts will come through and buoy a dispirited economy, pushing earnings higher in 2014. But then there’s that pesky Fed. Perhaps the optimists are whistling past the graveyard of markets undone by tapering.

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