Global Macro: Summers' Exit, Fundamentals Boost Markets
NEW YORK ( TheStreet) -- News of the withdrawal of candidate Larry Summers to be the next Federal Reserve chairman helped boost markets on Monday.
Summers was assumed to be a hawk on monetary policy, and investors feared he would have driven interest rates higher sooner than expected. Liberal Democrats favor Janet Yellen, the current Fed vice chairman.
Markets moved higher on Monday also on fundamentals and Fed expectations.
The first chart below is of SPDR S&P Homebuilders (XHB). Homebuilder stocks have steeply fallen since May, when it was first announced that the Fed was thinking about reining in monetary stimulus. As uncertainty has arisen over the exact amount the Fed will cut from its monthly bond purchases, however, the market has bought back Treasuries, pushing rates down and leading to more demand for cyclical sectors such as homebuilders.A head-and-shoulders pattern has developed on the homebuilders' chart, but the threat of violence in Syria and less aggressive estimates over the amount of tapering have driven prices higher off of support levels. (EEM). Like homebuilder stocks, emerging-market equities are tied to U.S. interest rates and dollar strength. As investors have priced in a smaller-than-expected cut to current bond purchases, the dollar has weakened and funds have continued to flow into emerging economies. There is less fear over liquidity drying up, which means excess capital can be allocated toward riskier investments such as emerging-market equities. Follow @AndrewSachais This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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