Greenspan, quarter end make chaos

NEW YORK – Like schoolchildren with report cards, fund managers and institutional investors are usually graded on a quarterly basis, which can make for turbulent trading at the end of every third month.

The final hours of the second quarter may be especially wild next Thursday as the market dissects a fresh statement from the Federal Reserve’s Open Market Committee, which is widely expected to hike short-term interest rates by another quarter point, to 3.25 percent. It would be the ninth such increase in the fed funds rate – the rate banks charge each other on overnight loans – since the group began its tightening cycle a year ago this month.

Professional investors scramble to adjust their positions at the close of the quarter, and Wall Street always sits up and listens when Fed Chairman Alan Greenspan and his colleagues issue their statement on rate policy, typically at 2:15 p.m. eastern time. Either of those events would create volatility. That they’re happening at the same time almost guarantees a chaotic session. Also, returns are low so far this year, which lends a heightened significance to end-of-session trading swings.

For professional investors, the quarter “could be made or ruined in an hour and 45 minutes,” said Richard Bernstein, chief U.S. market strategist at Merrill Lynch.