This past week the Fed surprised the markets (and 70% of the economists) by announcing the start of tapering this January. The markets rose sharply on the news of ending the uncertainty surrounding the start of slowing bond purchases, showing less concern over the reduction in Fed stimulus.
The Fed will reduce the monthly bond purchases by $5 billion in mortgage-backed securities and $5 billion in Treasuries, reducing total monthly purchases to $75 billion.
While the markets lost slight ground (except the Dow) on Thursday due to profit taking, it more than regained the loss on Friday setting new highs across all markets as GDP rose to an unexpected 4.1%. Data for manufacturing and housing were mixed and inflation remained low.
The markets were excited that the Fed expects economic growth to increase and saw improvements in the labor market, consumer spending, and fixed business investments.
While volatility increased in several indicators, the economy appears to be gaining momentum while inflation remains subdued and unemployment remains elevated. The Fed indicated that it is in no hurry to accelerate the pace of tapering.
Next week the focus will be on the consumer and housing. The week will start with Personal Income and Spending and move to New Home Sales followed by Durable Orders.
Year-to-date the markets are up: Dow 23.8%; S&P500 27.5%; Nasdaq 35.9%.
The Markets for the past week were: DJIA up 3.0%; S&P500 up 2.4%; Nasdaq COMP up 2.6%.
Commodities (ETFs) for the past week were: Gold (GLD) down -4.09%; Silver (SLV) down -1.74%; Oil (OIH) up 0.85%; Dollar (UUP) up 0.37%; 30-yr Bonds dropped 6 basis points to 3.82%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 13.79 due largely to the Fed tapering scheduled to start in January.
In the U.S., Oracle to buy Responsys for $27 a share; government warns debt ceiling could hit by Feb; Verizon plans more data disclosure; why did Target take so long to report the breach?; Darden to spin off or sell Red Lobster restaurants; Target data breach hits 40 million card accounts; NSA advisory panel: more spying, more 'transparency'; Tesla charging system may have started fire; fierce 'battle on margins' this year, says J.Crew CEO; US housing starts spike; airport personal shoppers goose layover spending; Google's new Chromebook 11 chargers being recalled because of fire hazard; Comcast weighs 3 options for Time Warner Cable deal; Glaxo says it will stop paying doctors to promote drugs; Oregon politician gets six years for Facebook IPO fraud; should you superfund your 529 college savings plan?; US prices flat in November, helped by cheaper gas; and judge says NSA program is likely unlawful.
In Europe, IMF scolds Ukraine plan for economy; secret documents reveal more NSA targets; Europe's banking marriage needs 'hard work' says Trichet; we are heading 'toward the next crash' says ex-UK PM; Europe rushes to seal banking union within 48 hours; AstraZeneca shares up on Bristol-Myers diabetes deal; investors must eye southern Europe with caution; Saab wins Brazil jet deal, NSA row sours Boeing bid; UK retail sales pick up, helped by clothing; Merkel urges EU treaty change in first speech; UK unemployment slide 'fuels suspicion' of rate hike; EU announces first ever rules on e-cigarettes; Euro zone agrees 'backstop' for failing banks; and UK to switch to plastic banknotes in 2016.
In Asia, China money rates continue climb; will Asia's gold bugs come to the rescue?; China Everbright Bank shares plunge; BOJ stands pat on policy, keeps economic view intact; Telstra to sell Hong Kong unit for $2 billion; China surpasses UK in US deal scrutiny; China cash rates continue marching higher; China shares may be cheap, but they could get cheaper; Citi picks AIA for Asia distribution deal; AirAsiaX eyes connectivity with $6bn Airbus deal; China cash rates jump on liquidity worries; India central bank surprises by keeping rates steady; Bitcoin price halves as China clampdown escalates; and JPMorgan to sell small investment business in Asia.
On Monday, with good news on manufacturing from the Industrial Production Report, the Dow rose 0.8% to 15,884.
On Tuesday, with little news and the markets waiting for the FOMC minutes, the Dow dropped fractionally to 15,875.
On Wednesday, with the Fed announcement of the start of tapering, the Dow rose 1.9% to 16,189. Gold fell $20 to $1,220.
On Thursday, with an unexpected poor Weekly Jobless Claims report, the Dow rose fractionally to 16,179. Gold dropped $30 to under $1,190.
On Friday, with a better than expected gain in GDP to 4.1%, the Dow rose to 16,221.
Next Week's Calendar
The economic calendar for next week is light: on Monday – Personal Income and Outlays, Consumer Sentiment; on Tuesday – Durable Goods Orders, New Home Sales; on Wednesday – markets closed for Christmas; on Thursday – Weekly Jobless Claims, EIA Petroleum Status Report; and Friday – nothing.
If the Markets move down, stay on the side lines or consider Contra ETFs. For Option players, selling premium is advised. To learn more about options and earning consistent weekly income, go to optionsannex.com. This article is authored by Ron Berg.
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