Stocks and bonds under Fed pressure

MGN Online
Monday, May 13, 2013 - 12:47pm

NEW YORK (CNNMoney) -- The jokes about QE Infinity may come to an end soon.

The Federal Reserve and its bond buying program were a hot topic Monday, following a Wall Street Journal report over the weekend that said central bank officials were considering an exit strategy for the massive stimulus measures that have been fueling the economy since late 2008.

The fear that the Fed may begin to unwind its loose monetary policies put pressure on U.S. Treasuries, with the 10-year yield spiking to a nearly two-month high of 1.93%. Just a month ago, yields were hovering around 1.6%. Treasury prices and yields move in opposite directions.

Stocks also pushed lower. The Dow Jones industrial average, the S&P 500 and Nasdaq fell about 0.2% in early trading.

The Fed's policies have been widely given credit for boosting stocks over the last few years.

Currently, the Fed buys $85 billion a month of mortgage-backed securties and Treasuries. Last month, the Fed said it stands ready to either "increase or reduce the pace" of those purchases in response to economic activity.

As investors debate the Fed' next moves, here are five more things to watch:

1. Retail sales unexpectedly rise: Retail sales edged higher in April, as strong car sales and spending on building supplies helped make up for weakness in other sectors.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, said retail spending "continues to show remarkable resilience," especially after the expiration of the payroll tax holiday earlier this year.

Economists had expected sales to decline.

2. Earnings continue to roll in: Companies will continue to open their books this week, with Macy's, Wal-Mart and J.C. Penney, as well as networking firm Cisco Systems on deck.

Shares of Tesla Motor extended last week's rally. The electric car maker reported its first quarterly profit last week, and a separate report said Tesla sales outperformed German luxury brands.

With earnings winding down, S&P Capital IQ said, of the 453 S&P 500 companies that have reported first quarter results, 301 have beat analysts' estimates, 115 have missed, and 37 have met.

3. Disappointing data from China: Asian markets ended mixed after a report showed China's industrial production expanded in April, but failed to meet expectations. The Shanghai Composite declined 0.2% and the Hang Seng dropped 1.5%.

But the weakening yen pushed the Nikkei up 1.2%. Tokyo's benchmark index has rallied by 42% since the start of the year based on optimism about the country's aggressive monetary policy.

4. Muddy Waters reportedly shorting Standard Chartered: Standard Chartered led the FTSE 100 lower after famed short-seller Carson Block of Muddy Waters Research was reported to have announced he is betting against the bank, saying its assets were deteriorating.

European markets were in the red in midday trading Monday, losing momentum after a strong performance last week.


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