Market Pause

What a nice run.  On August 16, the Dow up 15 percent year-to-date, the NASDAQ 19 and S&P 500 16. However, the market crested in early August after a surge that began the third week of June. The Dow has lost some 500 points, or about 3 percent of value. From record territory of 15658 on August 2 to nearly below 15000 in less than two weeks of pullback.

The pre-recession DJIA record was set on October 9, 2007 at 14164. It was only surpassed this March, after more than five years. The low was hit on March 6, 2009 (Obama had just been inaugurated) at 6626. We have been in a four-year market recovery.

May and early June of this year produced an earlier sell-off, reflecting uncertainty as to Fed moves after it signaled the $85 billion-a-month buying program that helps maintain record low interest rates and significant liquidity was to be tapered off.

Is this just a pause before the market continues to move toward a 20 percent annual increase or have conditions changed significantly that a period of instability produces random-like surges and declines for the next couple of months?

Economic data is mixed, with some lower than expected earnings reports, less than robust growth in developing markets, but U.S. jobless claims are down and there is some sign of life in Europe’s recession weary economy.

The markets have been stable and climbing in spite of a year of near total Washington gridlock and a host of Mideast crises that appear impervious to the administration’s influence. For much of the year, the market has appeared detached from both political and economic strife, but the Fed’s action may be a catalyst for a very bumpy couple of months.