Unexpectedly Intriguing!
July 22, 2013

The stock market noise event that began with an unfortunately statement made by Federal Reserve Chairman Ben Bernanke back on Wednesday, 19 June 2013 at 2:42 PM Eastern Daylight Time is essentially over.

We've chronicled the event from the beginning, as the S&P 500 first first lost some 4.8% of its closing value on 18 June 2013 in just four trading days, before taking another eleven trading days to recover to just over that level, to finally get to the effective conclusion of the noise event another seven trading days later!

What marked the end of the event was the conclusion of Chairman Bernanke's previously scheduled two days of testimony before the U.S. Congress, in which the Chairman was very careful to keep on the Fed's damage control message that the beginning of the end of its latest programs of quantitative easing was not imminent, and would be very unlikely before the end of 2013. Investors reacted by more completely shifting their forward-looking focus to the first quarter of 2014 in setting stock prices, which we can observe in our chart below:

Change in the Growth Rates of Expected Future Trailing Year Dividends per Share with the Daily and 20-Day Moving Average of S&P 500 Stock Prices

In our chart, we see that the change in the growth rate of daily stock prices (indicated by the dotted blue line) rapidly closed the gap with the level indicated by the year-over-year change in the expected growth rate of trailing year dividends per share for the first quarter of 2014 (indicated by the solid green line). With that level representing where investors are now focused, it is now well within the typical range of variation that we observe when the stock market is characterized by relatively low levels of noise.

What this means is that the Fed has been successful in re-shifting the forward-looking focus of investors back to the level of expectations associated with the future quarter of 2014-Q1.

In the absence of a new noise event, we would anticipate that the acceleration for stock prices will converge with and bounce around this level. The good news is that will mean generally rising stock prices.

The bad news is that noise is always present in the stock market - only its source and volume ever changes!

On a closing note, we'll observe that if nothing else, Ben Bernanke's second term in charge of the Fed is ending as it began, with a noise event that only arose as a direct result of his status as the Chairman of the Federal Reserve. Let's face it - he certainly wouldn't have anywhere near the same impact on markets if he were just a tenured professor at the second best university in New Jersey.

There's some symmetry there to appreciate, but if we're being honest, we're hoping that the next Fed Chair won't be so damned noisy in their comings and goings.

Previously on Political Calculations

If you're just discovering our brand of analysis now, here's a good part of the electronic trail for how we got to this point! First up, the basic theory we've developed and where we get our data:

Next, that electronic trail of analysis we've provided throughout the event:

  • The World Investors and the Fed Live In Now - Our snapshot of the market right before the event, in which we note that investor concern about the future of QE was growing and remark that there will be a market reaction in response to the outcome of the Fed's two-day meeting later that week.
  • The Bernanke Noise Event - as the Summer of 2013 shall ever be known to investors....
  • Now Is It Time to Sell? - according to statistics, a quaint branch of mathematics that only works to describe how stock prices vary with respect to their trend when order is present in the market. The problem with it is that the market goes in and out of order, so it's periodically pretty useless....
  • The Fed's Real QE Mistake: Timing - We explain how Bernanke really screwed up.
  • Now What Will You Do? - the statistical line is crossed! We look at everything that we see screaming "sell", without actually saying it's time to sell.
  • The Fed Attempts to Walk It Back - we anticipate how the Fed will respond to Bernanke's error, and we determine if it will work.
  • The GDP Multiplier for QE - Not about investing, at all! Instead, we explain why sustaining QE at current levels is so important to the U.S. economy at present.
  • "Never Bet Against the Fed" - we visually illustrate that the Fed's response to repairing the damage from Chairman Bernanke's blunder is working and recap why fears of stock market doom, despite signals to the contrary, were really overblown.
  • Bernanke Closes the Gap - the article you're reading right now, as it appears on our own site, just as we intended it!

We tossed the last link in because we're well aware that the vast majority of our readers encounter our articles elsewhere on the web! Come and visit us, if for no other reason than it's the one place on the web where our work appears, and in the case of the tools we develop, works, just about exactly as we intended!

Labels: ,

About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Stock Charts and News

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links

Useful Election Data
Charities We Support
Shopping Guides
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.