An unexpected week. This week—with its quiet beginning and volatile middle and end—was not the kind of week most of us expected. On Monday, stocks traded in a fairly narrow range. The mood on Wall Street was upbeat, especially on news that Yahoo had offered $1.1 billion for Tumblr. Lots of analysts are now predicting that this deal indicates that cash sitting on balance sheets will not get back in the game. If that happens, it will be good for the M&A market, and good for the economy generally.
Mellow beginning. Despite that early week deal news, we had a light economic and earnings calendar, and I (and many others) thought that would leave the markets drifting this week. Tuesday was fairly mellow, too. Two Federal Reserve officials made encouraging comments about the central bank’s bond-buying program, with one saying it has been effective. And when you add to that news from Home Depot, whose shares were up more than 3 percent on Tuesday because of a jump in quarterly earnings, you’d think the markets would be happy.
Enter Bernanke. And I guess they were, for a while. Then came Wednesday. The Dow was up more than 120 points early in the day, but then—and here’s where the Fed once again becomes the tail that wags the dog—Federal Reserve Chairman Ben Bernanke suggested the central bank was not ready to pull back on its economic stimulus efforts—though it might act if the economy continues to improve. That sort of “maybe we will and maybe we won’t” talk is the sort of thing the markets hate. By the afternoon, not only did the Dow give up its 120-point gain, it was actually down nearly 100 points before recovering slightly by day’s end.
Overseas turmoil. The same thing happened on Thursday. The markets were way down and then up and then back down by the close. Though on Thursday, the reason was somewhat different. Fear ran through the markets on news that Japan’s Nikkei was down 7.3 percent, and data from China indicated a serious slowdown in its manufacturing sector.
Still and all. We did see some positive news this week. Positive jobs and housing data eventually overwhelmed the bad news overseas and the uncertainty of the Fed’s pronouncements. Initial jobless claims fell last week to 340,000, and new home sales rose. And here’s the funny part: Just as a roller coaster goes up and down but always ends at the same spot, so it was with the Dow this week. Though there was a 350-point difference between this week’s high and low on the Dow, the index closed on Thursday within 15 points of where it closed the Thursday before. And when the Dow is trading above 15,000, that’s a statistically insignificant number.