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Market Update

Markets Cut Losses After Yellen Pick, Fed Estimates Taper Before 2014

Author: Nichole Harper
Last Update: 2:54 PM ET October 09 2013

2:50 PM New York – Investors appear to take the current debt and budget talk impasse in stride and forecasted a last minute deal before the end of the month. President Obama is set to announce the appointment of Janet Yellen as the next Fed Chairman. Most policy makers at the Fed see tapering to kick in the before the year end.

U.S. indexes recovered from morning losses after most Fed policy makers estimated a decline in central bank’s purchase by the end of this year.

The S&P 500 index declined 0.1% and cut its earlier loss of as much as 0.6% and the Nasdaq rebounded to a decline of 0.6% from the mid-day loss of 1.2%.

European markets declined and indexes in London fell 0.4%, in Paris declined 0.3% and in Frankfurt dropped 0.6%.

President Barack Obama is set to recommend Janet Yellen as chairman of the Federal Reserve Bank later this afternoon, according to a White House official.

Yellen, the first woman to lead the Fed is vice chairman of the Fed since 2010 and enjoys a broad support from both parties in the House and in the Senate.

Most traders and economists viewed the Yellen announcement as the continuation of Ben Bernanke’s policy.

Debt Ceiling Talks Spark Debt Default Scenario

Republican leaders in U.S. Congress are supporting a view that the U.S. can wait as long as November 1 to decide what to do with the budget and whether to increase debt ceiling or not.

Increasingly a vocal minority of Republicans are floating proposals that may force the government to spend what it receives in revenue on a weekly basis and that may lead to a technical default on the interest payment.

U.S. has the largest debt in the world totaling $16.7 trillion and Congress has raised the debt ceiling 78 times since 1960.

Increasing the debt ceiling does not increase the U.S. government debt, it simply allows the government to raise money to pay its existing bills and avoid a default. The interest on debt alone due at the end of October is $6 billion and if the government fails to pay the default will set off a chain of uncontrollable events around the world.

U.S. Stocks in Review

Alcoa Inc. (AA) climbed 3.4% or 27 cents to $8.21 after the aluminum producer reported revenue in the third-quarter ending in the September slid 1% to $5.77 billion. Net in the quarter swung to profit $24 million or 2 cents a diluted share compared to a loss of $143 million or 13 cents.

Alcoa reaffirmed global aluminum demand in 2013 to increase 7%.

Costco Wholesale Corporation (COST) gained 1.7% or $1.89 to $114.08 after the membership warehouse operator reported total revenue in the fourth-quarter ending on September 1 rose 1% to $32.49 billion. Comparable sales for the month of September jumped 5% and in the quarter climbed 5%.

Net earnings in the quarter soared 66.4% to $617 million or $1.40 a diluted share compared to $609 million or $1.39.

Net sales for the year jumped 6% to $102.87 billion from $97.06 billion in the prior year. Comparable sales for the year increased 6%.

Family Dollar Stores, Inc. (FDO) slipped 2.8% or $1.98 to $67.47 after the discount stores chain said total net sales increased 5.8% to $2.5 billion. Comparable store sales in the quarter were flat.

Net income in the quarter climbed 26.3% to $102.2 million or 88 cents a diluted share compared to $80.9 million or 69 cents.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc