It's a Taper Party, Who Could Ask for More?
Today's financial recap and tomorrow's financial outlook.
To the surprise of most on Wall Street, the Fed announced it was tapering $10 billion from its $85 billion-per-month bond-buying program, taking down Treasury and mortgage-backed security purchases by $5 billion each.
Heading into the meeting, various polls from investment banks and media outlets showed very low confidence in a taper.
However, the Fed highlighted "cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions" as reason to go forth with a $10 billion taper most expected would come in January at the earliest. The committee also said further purchase reductions are on the table, dependent upon labor market and inflationary trends.
Additionally, and perhaps more importantly, the Fed said it "likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the Committee's 2% longer-run goal." This effectively pushes monetary tightening even further into the future.
The S&P 500 (INDEXSP:.INX) dropped a quick 10 points on the taper news to 1767.99 before squeezing higher to finish at 1810.65, up 1.66% and within striking distance of the all-time high of 1813.55.
The VIX (INDEXCBOE:VIX), widely watched as a fear indicator, collapsed on the Fed news, going from an intraday high of 16.75 down to 13.80.
However, the Nasdaq Composite (INDEXNASDAQ:.IXIC) slumped on a relative basis courtesy of a dip in key momentum stocks, namely, top index component Apple (NASDAQ:AAPL). The stock dropped 0.8% as the company's expected iPhone distribution deal with China Mobile (NYSE:CHL) failed to come to fruition.
On the fixed-income side, the 10-Year US Treasury yield initially spiked as high as 2.929%, just under the recent high of 2.932% on December 6. That was followed by a hard reversal lower to 2.824% before a rebound back to 2.885%, which is basically where it was at the start of the meeting.
During the press conference, Fed Chair Ben Bernanke more or less indicated that today's action is the beginning of the end for quantitative easing as the program will likely be phased out by the second half of 2014.
Elsewhere on the economic front, this morning, November Building Permits came in at 1,007K, above consensus estimates of 990K. The October number was also revised up to 1,039K from 1,034K. Additionally, October and November Housing Starts were above expectations.
Tomorrow's Financial Outlook
Thursday will be a busy day on the economic front, with Jobless Claims, the Philly Fed, Existing Home Sales, and Leading Indicators all on the table.
We'll also receive some notable earnings reports, namely Accenture (NYSE:ACN), ConAgra (NYSE:CAG), and KB Home (NYSE:KBH) before the open, and Nike (NYSE:NKE) after the close.
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