Market Perspective for June 16, 2014

All eyes will be on Iraq and the energy market over the coming days. Last week, events briefly pushed West Texas Intermediate Crude above $107 per barrel. Brent North Sea Crude spiked even higher on a percentage basis, briefly climbing above $114 per barrel. Since rising U.S. energy production has displaced imports from outside of North and South America, instability in the Middle East is not as a large factor on prices anymore. Further instability will mean higher prices for everyone, but the U.S. economy should not be impacted significantly.

There will also be a Federal Reserve Federal Open Market Committee Meeting this week. Investors and Fed officials alike are starting to wonder when the Fed will complete the taper process. Based on the current rate of tapering, some expect it could end by October or December, with others speculating it could end even sooner. Given that Fed officials have discussed the issue, the Fed statement will be closely watched for clarification. While no information may be provided, if there is an end date in the Fed’s statement, it could lead to some volatility in the market.

Also, with the Fed meeting, interest rates will be under the microscope. The performance of utilities has been tied to interest rates, with utilities moving down when rates go up. Financials could also see some movement, but in the opposite direction if rates increase.

Economic Reports: Aside from the Fed meeting, there is industrial production, capacity utilization and the CPI for May. MIT’s Billion Price Project shows inflation has been picking up, although the government’s estimates have not risen yet. Look for CPI to surprise to the upside this week. Were that to happen and the Fed to signal an early exit from the taper, look for volatility in interest rates.

Earnings: There are a few firms that report during this quiet period after the conclusion of earnings season: FedEx (FDX) and Oracle (ORCL) are large enough names in transportation and technology to move the entire sector. Also reporting this week are Blackberry (BBRY), Adobe (ADBE), Smith & Wesson (SWHC) and Rite Aid (RAD).

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