Stock volatility only owes so much to Fed
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A reversal of the yen carry trade has also upset markets
Stock investors can’t stop thinking about the Federal Reserve these days, and the pressure is on policymakers to come clean about their plans after a turbulent few weeks of trading.
Yet even if the Federal Reserve clarifies its intentions about scaling back asset purchases—the worry that’s dogged stocks for three weeks—it may not be enough. The resurgence in the yen USDJPY -1.3502% , whose April-May dive coincided with the last leg of the recent stock rally, may undermine any support from the Fed, say analysts.
“Some of the volatility we’ve seen is more a reflection of greater forces at work,” said Doug Sandler, chief equity officer at Riverfront Investment Group.
Given the attention on the Fed since its last Federal Open Market Committee meeting, this week’s two-day meeting starting Tuesday will be of particular interest. Stocks, which had been on a continuous rally since November, kept on running in May when the Fed said it could “increase or reduce the pace of its purchases” of assets. They hit a ceiling later in the month when Fed Chairman Ben Bernanke told Congress purchases could get scaled back in the next few months.
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