Stocks & Equities

U.S. stocks staged an explosive rally on Wednesday, driving the Dow and the S&P 500 to all-time closing highs after the Federal Reserve announced it would start to unwind its historic stimulus.

While the Fed’s move came as a surprise to many in the market, it confirmed that the U.S. economy was on firmer footing and put to rest the question of when the Fed would begin to scale back its bond-buying program, a relief to some investors, analysts said.

“This is a vote of confidence in the economy and represents the first step toward monetary policy normalization,” said David Joy, chief market strategist at Ameriprise Financial, in Boston.

The central bank said it would reduce its monthly asset purchases by $10 billion to $75 billion, while it also indicated that its key interest rate would stay at rock bottom even longer than previously promised. It said it “likely will be appropriate” to keep overnight rates near zero “well past the time” that the U.S. jobless rate falls below 6.5 percent.

Yet the decision to move now rather than later pointed to better prospects for the U.S. economy and the labor market. It also marked a turning point for the largest monetary policy experiment ever.

Stocks extended losses just after the announcement, but quickly turned higher and began rallying. The day’s move marked the biggest swing from the day’s high to the low for the S&P 500 in two years. All 10 S&P 500 sector indexes ended higher, with all but information technology .SPLRCT gaining more than 1 percent, and the S&P 500 financial index .SPSY rising 2.4 percent.

Why Tapering is No Big Deal

Posted by Martin armstrong - Armstrong Economics

on Wednesday, 18 December 2013 15:15

Bernanke-before-CongressThis insane focus of the Fed’s options — “tapering” or not, misses the entire point. Most people admit that the whole quantitative easing has failed. True, the unemployment rate has fallen from a peak of 10% in 2010 to 7% today and the Fed’s target it claims is to keep short-term rates a near zero until that falls to 6.5%. But there are many who believe tapering is required as quickly as possible, because they argue it is contributing to an overinflated stock market.

The intense debate over the virtues of quantitative easing is really meaningless. It has failed to accomplish any goals because the Fed does not take direct action. It offset the quantitative easing by creating an excess reserve facility paying 0.25%. Banks have over $2 trillion deposited there risk free. So while the Fed “bought” bonds to lower long-term rates, it then replaced that avenue with a boulevard allowing banks to sell their junk bonds to the Fed and then park the cash on which they then paid them interest. The idea this would “stimulate” the economy has proven to be false because the banks failed to lend the money out.

Lower the interest rate the Fed pays banks is the ONLY real stimulus. If the Fed eliminated the interest rate it pays banks of 0.25%, then you would see stimulation. Everything the Fed has done to this day has failed to produce inflation and the stock market rise is simply capital trying to earn a living. This is still no speculative bubble.

More Articles from Martin:

Cycle Inversions – Critical to Understand

Complexity & the Future of the Dow

Top Stories
World equities throw off pre-Fed caution. Helped by positive economic news (see below), global stock markets were mostly higher at the time of writing ahead of an announcement by the FOMC today over whether it will start the taper, with investors seeming to throw off their usual caution and nervousness about these things. Derek Halpenny of Bank of Tokyo-Mitsubishi UFJ reckons that a taper announcement would not only not hurt stocks but could even encourage a year-end rally, as it would help clear up uncertainty.

Apple still in talks with China Mobile over iPhone deal. Apple (AAPL) hasn’t yet sealed a deal with China Mobile (CHL) for the latter to sell iPhones, with its chairman, Xi Guohua, saying that the companies are still in talk. Earlier this month, the WSJ reported that the deal could be unveiled today, but Xi’s comments suggest otherwise.

Top Stock News
BP in major oil find but also writes off $1.1B. BP (BP) has made a significant oil discovery at its Gila prospect in the Gulf of Mexico, which the U.K. company co-owns with ConocoPhillips (COP). BP will now need to carry out further work to determine the size of the reserve. However, BP is booking a $1.1B write-off related to an off-shore Brazilian well that came up short. Still, 2013 has been BP’s best year for new field exploration for nearly a decade.

DOJ to file civil fraud charges vs Citi, Merrill. The Department of Justice is preparing to file civil fraud charges against Citigroup (C) and Merrill Lynch (BAC) over the sale of mortgage bonds prior to the financial crisis, Reuters reports. The DOJ is also progressing in probes of RBS (RBS) and Credit Suisse (CS). The report comes a month after JPMorgan (JPM) reached a $13B settlement with the DOJ and other agencies over the issue.

JPMorgan sues FDIC for portion of Washington Mutual cash. JPMorgan (JPM) has sued the Federal Deposit Insurance Corp. for a portion of the $2.7B remaining in the FDIC receivership that liquidated Washington Mutual following the sale of its branches and deposits to JPMorgan for $1.88B during the financial crisis in 2008. The lawsuit is the latest development in the dispute between JPMorgan and the FDIC over who should assume Washington Mutual’s legal liabilities, such as those related to the sale of problematic mortgage bonds.

SABMiller Chairman dies of cancer. SABMiller (OTCPK:SBMRY) Chairman Graham Mackay has passed away at the age of 64 following a battle with cancer and will be replaced by acting chairman John Manser with immediate effect. Manser will delay his retirement by a year to July 2015 while the world’s second-largest brewer looks for a candidate for the long term.

EU Council approves tobacco directive. The EU council has authorized measures that would ban the selling of flavored tobacco in member states, including fruit, menthol, and vanilla. The EU also wants combined picture and text health warnings to cover 65% of the front and back of packages of smoking products

Top Economic & Other News
Budget passes key Senate procedural vote. The Senate has voted 67-33 to restrict the debate on the bipartisan budget bill that has already passed in the House, thereby ensuring that opponents can’t use a filibuster to stop it. The Democrat-led chamber is now expected to approve the budget legislation in a vote that could take place today. The bill sets spending at just above $1T over two years and eases some of the sequestration cuts in return for future savings elsewhere.

German businesses continue to gain confidence. The German Ifo institute’s business climate index has increased to its highest in 20 months, edging up to 109.5 in December from 109.3 in November and meeting consensus. The expectations print climbed to 107.4 from 106.4 and beat estimates, although the current-situation reading slipped a bit. Still, says Ifo CEO Hans-Werner Sinn, “the German economy is in a festive mood.”

U.K. unemployment falls to lowest in over 4 1/2 years. U.K. unemployment dropped to its lowest level since April 2009 in the three months to October, falling to 7.4% from 7.6% in July-September. The number of people who were employed was 30.09M, surpassing 30M for the first time ever. However, the growth in average weekly earnings excluding bonuses was just 0.8% on year, well below inflation of 2.1%.

BOE again united in keeping policy on hold. As expected, the Bank of England’s Monetary Policy Committee voted unanimously to keep interest rates at 0.5% and against more quantitative easing at a meeting earlier this month. However, the BOE’s has made an about-turn on sterling, notes Reuters’ Jamie McGeever. Only three months ago, the minutes showed that the rising pound would cool inflation. Now, further gains could hit the U.K.’s recovery. As if to drive home the point, the pound was +0.6% at $1.6367 at the time of writing.

Japan’s exports rise more than expected. Japanese exports climbed 18.4% on year in November vs +17.9% expected and +18.6% in October, while imports jumped 21.1% but eased from growth of 26.1%. Interestingly, the volume of merchandise exports rose 6.1% on year – the sharpest increase in a year and a half – indicating that the weak yen isn’t just boosting the value figure.

BOJ officials see room to loosen policy even further. Bank of Japan policy makers reportedly believe that the BOJ has significant scope to increase the rate of its bond purchases if it needs to in order to meet its 2% inflation target. The officials aren’t too worried about the perception that the bank is underwriting fiscal deficits, but they want more time to assess price trends. The BOJ is due to start a two-day policy meeting tomorrow.

India surprisingly leaves interest rates unchanged. The Reserve Bank of India has held its benchmark repurchase interest rate at 7.75%. With inflation rising last month, economists had expected the RBI to hike the rate by a quarter of a percentage point. However, the bank cited projections that food costs, a main component of inflation, could soften. The RBI could act in the future but it wants more data first, while it also wants to support stuttering growth. Indian shares jumped following the lack of action from the RBI.

Alpha-Rich Stock Movers and Great Calls
1) Investment firm Steamboat Capital highlighted red flags and deteriorating performance in recommending a short sale of LifeVantage (LFVN) on December 4. Shares are -17.2% to date. Read article »
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Today’s Markets: 
In Asia, Japan +2% to 15587.8. Hong Kong +0.3% to 23144. China -0.1% to 2148. India +1.2% 20860. 
In Europe, at midday, London +0.3%. Paris +0.6%. Frankfurt +0.9%. 
Futures at 6:20: Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude +0.1% to $97.34. Gold +0.1% to $1231.80. 
Ten-year Treasury Yield -1 bps to 2.85%

Today’s economic calendar:
7:00 MBA Mortgage Applications
8:30 Housing Starts
10:30 EIA Petroleum Inventories
1:00 PM Results of $35B, 5-Year Note Auction
2:00 PM FOMC Announcement
2:00 PM FOMC Forecast
2:30 PM Bernanke Press Conference

Notable earnings before today’s open: FDX, GIS, LEN

Notable earnings after today’s close: ORCL, PAYX, SCS

See full real-time earnings coverage »

Wall Street Breakfast is sent out by email for free — Get it now »

Asian stocks rose, with the benchmark regional index climbing for a second day, as investors await a Federal Reserve decision on its stimulus program.

…full article HERE

Action Alert

Posted by Mark Leibovit - VR Trader

on Wednesday, 18 December 2013 3:40

STOCK MARKET – ACTION ALERT -BEAR-‘Turnaround Tuesday’ had its impact, albeit minor and the ‘Street’ is now holding its breath to hear the FOMC statement today. Also, Friday is Options Expiration. The caveat, regardless of news, is if the markets fail to hold last Thursday’s intraday lows, we could be going off the cliff. This doesn’t have to happen today, but it’s a zone you have to watch. More than likely the bulls will prevail here because it doesn’t make any strategic sense for the markets to sell-off this sharply ahead of Christmas. For one, it violates Bernanke’s (and likely Yellen’s) edict to target a higher stock market. Stay tuned.
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COMMENTARY:

Economic data was limited to just a handful of reports. November consumer prices were unchanged while the Briefing.com consensus expected an uptick of 0.1%. Core prices increased 0.2%, above the 0.1% increase expected by the Briefing.com consensus.

Separately, the current account deficit for the third quarter totaled $94.8 billion, which was narrower than the $101.0 billion deficit that had been broadly anticipated.

Lastly, the December NAHB Housing Market Index rose to 58 from 54 while the Briefing.com consensus expected the reading to tick up to 55.

Today, the weekly MBA Mortgage Index will be reported at 7:00 ET while November Building Permits and Housing Starts for September, October, and November will be released at 8:30 ET. The day’s data will be topped off with the much-anticipated 14:00 ET release of the FOMC policy directive.

Below here are some key reasons why the FOMC might decide, or not decide, to make a tapering announcement on Wednesday.

The case for tapering now:

The House has passed the budget agreement and signs point toward the Senate doing the same this week. That signals the likelihood of less fiscal disruption, and less fiscal restraint, out of Washington in 2014.

Labor market trends are certainly improving. Nonfarm payroll gains have been 200,000+ in three of the last four months and have averaged 191,000 per month over the prior 12 months versus 151,000 (includes revisions) when QE3 was launched in September 2012.

Markets have hung in reasonably well as the case for a taper has gotten stronger, giving the Fed some measure of confidence (and another window of tapering opportunity) that participants are ready for a taper predicated on improving economic activity.

  • Moody’s notes high-yield spreads have hit a cycle low.
  • The S&P 500 hit a new record high.
  • After the strong November employment report, the fed funds futures market did not alter its view that the first rate hike will wait until July 2015.
  • The 10-yr yield is down two basis points since the strong November employment report.

The next scheduled FOMC press conference isn’t until March. If a tapering announcement is made, the presumption is that the Fed chairman will want to explain it at a press conference (and the Fed chair may not want to wait until March given the improving data that could create financial market imbalances in the interim).

In the face of a declining budget deficit and an improving economy, there is growing uneasiness within the Fed about its balance sheet expansion. The case against tapering now:

Inflation rates remain well below the Fed’s target rate.

Real final sales, up 1.9% in Q3, remain relatively weak; and Q4 GDP is apt to be under 2.0% .

The framework for a budget agreement is in place, but nothing has been resolved yet on the debt ceiling.

There are reports that year-end liquidity issues will factor into a decision to hold off for now.

Once the tapering begins, the Fed runs a heightened risk of seeing its credibility get eroded if it has to increase its purchases again on account of weakening data. While recent data have been encouraging, the Fed will want to be more certain about the sustainability of the improvement.

 

About Mark Leibovit

Screen Shot 2013-12-17 at 7.25.45 PMMark Leibovit is Chief Market Strategist for VRTrader.Com. His technical expertise is in volume analysis, providing short-term, high performance stock trades and market timing based upon his proprietary VOLUME REVERSAL ™ trading program. In tracking his positive and negative Volume Reversal signals, Mr. Leibovit is able to flash buy or sells and profitably exploit the momentum and volatility of a short-term move in a stock or index. His trading strategy provides clearly defined risk-management guidelines based on his technical volume indicators.

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