U.S. and World News
- The Federal Reserve announced this week that the central bank will be tapering their asset purchases in January from $85 billion per month to $75 billion. The $10 billion reduction will be split evenly between Treasury and Mortgage Backed Securities. The Committee expects that the conclusion of the asset purchase program (QE) will come in the second half of 2014.
- The Fed also commented on the path of the Federal Funds Rate (overnight rate banks loan money to each other at) and stated that these rates will be held near zero until well past the time unemployment declines to 6.5%, especially if inflation continues to run below the group’s 2% long term goal. These statements were slightly more dovish than they had been before and were much of the reason that equity markets rallied on the news.
- The Senate has passed the budget deal that went through the House last week and will now go to President Obama. The agreement sets spending levels for the next two years and replaces some of the automatic budget cuts that had been put in place by the sequester. However, there is still debate to be had as to how to spend the money, with some in Congress still seeking to remove funding for Obamacare.
- Stock markets rallied to make new all-time highs following the Federal Reserve’s announcement that they will be moderately tapering asset purchases starting in January. The S&P 500 Index was up 2.03%, closing at 1,818 and the Dow Jones Industrial Average was up 2.69% to close at 16,221. The S&P and the Dow respectively are up 27.49% and 23.79% year to date.
- Treasury yields rose on the news of the Fed tapering. The 5 year and 10 year treasury are now yielding 1.68% and 2.89% respectively.
- The spot price of WTI Crude Oil rallied this week with prices rising by 2.27% and closing at $99.13 per barrel. Year to date, oil is now up 6.57%.
- The spot price of Gold fell to a 52 week low, dropping 2.95% and closing at $1,202.16 per ounce. Gold is now down 28.24% this year.
- Initial jobless claims rose from last week to 379,000 vs. consensus estimates of 336,000. The four week moving average for claims rose to 344,000. The Labor Department noted that while no states estimated claims, seasonal adjustment around the holidays may be affecting claims numbers.
- Existing home sales continued to decline in November, falling 4.3% vs. expectations of -2.0%. Sales fell in all four regions of the country. Existing home sales are based on contract closings and not signings, so they are a bit of a lagging indicator.
Fact of the Week
- The size of the Federal Reserve’s balance sheet eclipsed $4 trillion for the first time this week. Its balance sheet has quadrupled since 2008 when the Fed’s extremely accommodative monetary policy began and has increased by more than $1.2 trillion since September 2012 when its latest round of Quantitative Easing began.
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