5 charts show why the Fed fretting about emerging markets

18 Sep 2015 | Author: | No comments yet »

US stocks drop as investors worry Fed rate decision signals slower global growth; Bonds rally.

NEW YORK — U.S. stocks dropped in midday trading Friday after the Federal Reserve’s decision to hold off raising interest rates. Apart from the state of the world economy, the Fed cited financial market volatility and sluggish inflation at home in its decision on Thursday, while leaving the door open for a modest policy tightening later this year. An economic environment in which the Fed feels it can’t end the era of near-zero interest rates is not one likely to foster the kind of earnings growth needed to support stocks at their current, above-average valuations.

Despite recent declines, the S&P 500 is still trading near 15.6 times forward 12-month earnings, above the 10-year median of 14.7 times, according to Thomson Reuters StarMine data. “Investors are wrestling with how concerned they should be regarding global growth,” said Jeremy Zirin, chief equity strategist at UBS Wealth Management. Nine of the 10 major S&P sectors were lower with the energy index’s 1.73 percent fall leading the decliners as oil prices declined after the Fed’s comments. THE FED: The Federal Reserve decided Thursday to keep interest rates at record lows, citing low inflation, weakness in the global economy and unsettled financial markets. Investors appear to have interpreted the decision to mean that the Fed thinks the slowdown in China and other emerging markets is signaling a much weaker global economy.

THE QUOTE: “If growth in the strongest economy — the United States — isn’t strong enough to raise rates even a quarter of point, what does that say about the prospects for global growth?” said Bill Strazzullo, chief strategist at market research firm Bell Curve Trading. Investors are now focusing on the Fed meeting on Oct. 27-28 as the next chance for the central bank to raise interest rates for the first time since 2006. “Investor uncertainty will continue and each economic data point and other news out of China will be sliced and diced,” said Keith Lerner, chief market strategist at SunTrust Bank in Atlanta. Adobe was up 3.7 percent at $83.32, reversing premarket losses, after brokerages raised their price target on the stock a day after the company’s third-quarter profit beat expectations. PLANE PROBLEMS: Aviation equipment manufacturer Rockwell Collins slumped after the company’s sales forecast for next year came in lower than analysts’ forecasts.

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