US stocks are struggling for a third day in a row, with lingering anxiety over how long the Fed will continue its stimulus programme following comments from Atlanta Fed President Dennis Lockhart yesterday that suggested September remains a candidate for the start of tapering.
The Dow was dragged down by Walt Disney Co, after the entertainment and media giant warned of looming losses from its big-budget turkey The Lone Ranger. Although Disney actually beat estimates for earnings for the past quarter, thanks to rising advertising revenue at ESPN, CFO Jay Rasulo said that the movies division would lose between $160 million and $190 million for the quarter ending in September, thanks to the underperforming Western starring Johnny Depp. Disney fell 1.6% today.
We’re now very much at the end of the US corporate reporting season, and so investors will be looking back at the macroeconomy for direction. So much of this year’s stock market rally has been linked to central bank stimulus, that naturally the market gets a little tetchy when members of the Fed start dropping comments about tapering at the next Fed meeting. We heard yesterday from Dennis Lockhart of the Atlanta Fed and Charles Evans of the Chicago Fed that they thought tapering might occur at the next few FOMC meetings , but I would stress that neither said anything to counter the broad guidelines already given by Ben Bernanke, with the key aspect being that the decision will be based on incoming data.
Given that last Friday’s payroll growth was disappointingly soft for July, with a downward-revision to June’s number as well, I think September looks an unlikely candidate in spite of these latest comments from the Fed. Sandra Pianalto, President of the Cleveland Fed, speaks later today and it will be interesting to see how her comments compare.