Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (09/30/13) |
Previous Week (12/13/13) |
Current Week (12/20/13) |
YTD Change |
Week Change |
|
Dow Jones Industrial |
13,104.14 |
15,129.67 |
15,755.36 |
16,221.14 |
23.79% |
2.96% |
|
NASDAQ |
3,019.51 |
3,771.48 |
4,000.98 |
4,104.74 |
35.94% |
2.59% |
|
S&P 500 |
1,426.19 |
1,681.55 |
1,775.32 |
1,818.31 |
27.49% |
2.42% |
|
Russell 2000 |
849.35 |
1,073.79 |
1,107.12 |
1,146.47 |
34.98% |
3.55% |
|
Global Dow |
1,995.96 |
2,310.26 |
2,380.63 |
2,435.27 |
22.01% |
2.30% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
2.61% |
2.87% |
2.89% |
113 bps |
2 bps |
Looks like Gentle Ben wants to go out with a bang and not a whimper. After months (and months and months) of nonstop debate about monetary policy, the Fed initiated a (relatively minor) tapering move of its bond buying program, decreasing by $5 billion each the amount of treasuries and mortgages it will purchase in January (and beyond). Next month, the Fed will buy $75 billion total of such products (from $85 billion) with more "measured reductions" to come as its continues to monitor the economy closely in assessing the need and timing of future taper moves. Apparently future Fed Chair Janet Yellen is on board with the decision. In reality, though the Fed will buy fewer securities in the months to come, it may actually increase its role in the mortgage market as the higher interest rates have reduced homeowners’ refinance activities and the total issuance of new loans has declined since the summer.
The statement following the Fed’s policy meeting emphasized that this move will have no impact on its desire to keep short-term interest rates low (near zero) for the foreseeable future, perhaps even long after the unemployment rate falls to its targeted 6.5% level, as long as inflation remains in check. Fickle investors welcomed the tapering strategy and sent the Dow Jones to a new record high and to its third largest percentage gain of the year. Despite the perceived concern about the overall strength of the economy, investors apparently took Bernanke at his word and believed that the Fed must truly believe the economy can continue to grow without the artificial stimulus (or, at least, with a “tapered” down policy).
While Bernanke was not the only headline of the week, he surely was the most prominent. Last minute transactions also topped the news as boardrooms got in under the wire for some late 2013 announcements. Avago Technologies will buy chipmaker LSI for over $6 billion and private equity mega-giant KKR will bring its sister financing company, KKR Financial, under the same roof in a $2.6 billion all-stock deal. Boeing and 3M both increased their quarterly dividends, while Facebook revealed a plan to sell an additional 70 million shares (valued at about $4 billion) to the public. IPOs ended a banner year as 229 deals closed in 2013, far exceeding the 145 last year and raising some 31% more in proceeds. Investors were rewarded as shares of new public companies increased an average of 33% from their offer price.
Investors kept the bullish sentiment going for what some consider the last real trading week of the year (before holidays and vacations set in). Many reacted favorably to news and comments from the Fed and equities ended the week on a strong note as the better-than-expected revised GDP lent more credence to the belief that the economy can withstand the tapering action. A healthy consumer in the third quarter brought newfound optimism for the holiday season. The Dow remained on record-setting pace and the other key indexes continued to reward investors with a stellar 2013. Crude also moved slightly higher as a strong economy should translate into solid demand for energy in the future. Enjoy the season.
Economic Calendar
|
Date |
Release |
Comments |
|
December 16 |
Industrial Production (11/13) |
Surpassed pre-recession peak |
|
December 17 |
CPI (11/13) |
Below Fed’s targeted rate |
|
December 18 |
Housing Starts (11/13) |
Highest level in nearly 6 years |
|
Fed Meeting Statement |
Tapering begins |
|
|
December 19 |
Jobless Claims (12/14/13) |
Higher though volatile during the holiday season |
|
Existing Home Sales (11/13) |
Lowest level in almost a year |
|
|
December 20 |
GDP (3rd qtr – revised) |
Fastest pace since the 4th quarter of 2011 |
|
The Week Ahead |
||
|
December 23 |
Personal Income/Spending (11/13) |
|
|
December 24 |
Durable Goods Orders (11/13) |
|
|
New Home Sales (11/13) |
||
|
December 25 |
Christmas Day |
|
|
December 26 |
Jobless Claims (12/21/13) |
So much for all the great prognosticators. For the most part, the most recent pre-Fed meeting opinions seemed to have the policymakers waiting until January or even March to initiate a tapering strategy. The non-existent inflationary pressures looked to give Bernanke and Co. some cover to delay a move for another month or two (and then it will fall on Yellen’s watch). Instead, the Fed initiated what some see as a token move to get the ball rolling and investors accustomed the action. Still, Bernanke emphasized that the Fed could “skip a meeting or two” should the economy begin to falter and be unable to sustain similar growth on its own. Investors have come to grips with the inevitability of the move and the magnitude of the positive equity market move may have caught analysts off-guard.
The data of the week was reasonably favorable as industrial production gave manufacturing a nice shot in the arm by posting its biggest jump of the year. Similarly housing starts jumped to its highest level in close to six years, though existing home sales declined on a year-over-year basis for the first time in 29 months. Taken together, the releases bode well for housing. With home prices on the rise and a limited inventory of existing houses, many folks are choosing to build exactly what they want. Third quarter GDP was revised upward to reflect strong 4.1% growth on better biz and consumer spending, though some naysayers worry that the fourth quarter and beyond will not reflect similar strength. Finally, jobless claims climbed to its highest level since March, adding new worry to the labor market, though late-year data is typically volatile as seasonal hiring/firing is often unpredictable.
Overseas, manufacturing activity in the Eurozone was reported at its fastest pace since May 2011. While that economic superpower in Germany continued to rock along in solid expansion mode, France remains in contraction and its figures came in below expectations. China’s purchasing managers index fell to 50.5, lower than that reported in November, but still barely in expansion.
On the Horizon… “It’s beginning to look a lot like…” For all practical purposes, close the books on 2013. Sure, investors (at least those who choose to show up these last two weeks) may engage in window dressing and even some profit-taking as the year winds down and some volatility may ensue as skeleton staffs make up the trading desks. But, for the most part, investors can depart with the knowledge that 2013 was very very good to them. Markets hate uncertainty and fortunately a few major pieces of news have been cleared up as the year comes to a close. Politicos put on their compromising caps (for a change) and came up with a (pretty toned down) budget deal that should eliminate the fear of a gov shutdown for the foreseeable future. Bernanke ended his game of monetary policy “kick the can” in advance his retirement and kicked off the new tapering policy. Small investors joined the party as of late and even they were able to enjoy a few new records late in the year. Here’s hoping 2014 brings similar holiday joy.
© Brounes & Associates
http://www.ronbrounes.com/mtkcom.htm
