Near-sighted investors anxiously awaited today’s release of the Federal Open Market Committee’s July meeting minutes, and it was as if some had their hands hovering over the “sell” button just in case any hints of tapering were to appear. The Dow Jones Industrial Average (DJINDICES:^DJI) immediately plunged more than 100 points following the release, but it has since largely recovered, down just 30 points for the day as of 3:20 p.m. EDT. There’s something investors can learn here, so let’s demystify this situation and explain why long-term investors can ignore today’s FOMC minutes.
This ongoing saga started in May when Chairman Ben Bernanke signaled that the Fed could soon begin to draw down its $85 billion-per-month bond purchases. Since then, analysts, investors, and economists have been searching for any clues regarding when this could take place. Most still anticipate a pre-announcement to come during the two-day FOMC meeting that starts on Sept. 17, and the “tapering” of the Fed’s quantitative easing is expected to begin sometime in the fourth quarter.
So if that was the consensus assumption, then what’s the problem?
The problem lies with the actual July 31 FOMC policy statement, which didn’t communicate any desire to taper asset purchases this year — an odd omission after Bernanke sent his signal in May. So today’s minutes showing that Fed officials are “broadly comfortable” with Bernanke’s plan to wind down QE in the near future were enough to make the Dow Jones Industrial Average (DJINDICES:^DJI) drop.
But ignore all of that.
For long-term investors, volatility from the FOMC’s minutes doesn’t matter much. For instance, the biggest holding in my portfolio is Ford, and nowhere on my list of positive and negative catalysts does “Fed tapering” appear. That doesn’t matter to me next week, next month, or in the next five years; what matters is that Ford has a long-term vision for success involving reduced European losses and expansion in China. That’s my outlook, and investors would be wise to adopt a similar stance when trying to beat the market over the next decade.
Now, with all that aside, let’s cover some hot topics both inside and outside of the Dow Jones Industrial Average (DJINDICES:^DJI) today.
Hewlett-Packard Company (NYSE:HPQ) is one of the Dow Jones Industrial Average (DJINDICES:^DJI)’s biggest losers today, down 1.6%. Investors don’t seem optimistic about Hewlett-Packard Company (NYSE:HPQ)’s earnings report, due after the closing bell. Hewlett-Packard Company (NYSE:HPQ) is expected to see revenue fall 8% and post earnings of $0.86 per share, down from $1 a year ago. One key takeaway will be Hewlett-Packard Company (NYSE:HPQ)’s PC market share, as competitor Dell recently reported an increase.
Looking ahead, CEO Meg Whitman will have her hands full trying to keep the stock’s momentum going; it’s up roughly 75% year to date. The company’s PC business is struggling as the industry declines and substitute technologies gain market share. It also faces competition from large competitors like Cisco, which are eyeing Hewlett-Packard Company (NYSE:HPQ)’s traditional business markets.
Microsoft Corporation (NASDAQ:MSFT) is one of the rare Dow Jones Industrial Average (DJINDICES:^DJI) winners today, up 0.8%. The tech giant is also trying to catch up with consumers as they transition from PCs to mobile devices. Last quarter highlighted this difficulty with an inventory adjustment of $900 million from promotions and discounts. Microsoft Corporation (NASDAQ:MSFT) bulls still believe the company can return stronger than ever as its server and tools business gain share in an expanding market. If the company can develop better mobile devices to go with its Windows 8 launch, there could be upside left in the stock, which has gained only 3% over the last 12 months.
There’s also good news on the housing front for these two: Existing-home sales in the U.S. increased by 6.5% last month, which marked the highest sales level since November 2009. While consumers may be jumping in to take advantage of low interest rates while they last, it could still bring more traffic into stores as consumers begin improvement projects on these houses.
The article Fed Minutes Fuel Volatility — Ignore it originally appeared on Fool.com is written by Daniel Miller.
Fool contributor Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lowe’s. The Motley Fool owns shares of Microsoft.
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