/perspectives/weekly-viewpoint/taper-talk-heats-up-but-likely-to-prove-premature

Taper Talk Heats Up but Likely to Prove Premature

The Dow Jones Industrial Average (Dow) fell 0.41%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.07%, the Standard & Poor’s 500® Index (S&P 500) dipped 0.04% and the NASDAQ Composite Index (NASDAQ) finished up...

December 09, 2013

Performance for Week Ending 12/6/13:
The Dow Jones Industrial Average (Dow) fell 0.41%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.07%, the Standard & Poor’s 500® Index (S&P 500) dipped 0.04% and the NASDAQ Composite Index (NASDAQ) finished up 0.06%. Sector breadth was mixed with 6 of the S&P sector groups finishing lower and 4 finishing higher. The Utilities sector (+0.83%) was the best performer while Telecom (-0.93%) was the worst.
Index* Closing Price 12/6/2013 Percentage Change for Week Ending 12/6/2013 Year-to-Date Percentage Change Through 12/6/2013

Dow

16020.20

-0.41%

+22.25%

Wilshire 5000

18786.15

-0.07%

+27.28%

S&P 500

1805.09

-0.04%

+26.57%

NASDAQ

4062.52

+0.06%

+34.54%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 12/2/13 - 12/6/13

The major market indices finished the week mostly lower on rising concern the Federal Reserve (Fed) could begin tapering their quantitative easing program sooner (December/January) rather than later (March). The uptick in tapering concern has been sparked by the recent strength in economic data which suggests the economic recovery is gaining momentum. Last week’s data was highlighted by the November payroll report which showed nonfarm payrolls rising by over 200K for the second straight month. The unemployment rate fell to 7.0%, the lowest level since late-2008 and private payrolls—which filter out government hiring/firing—rose by a better than expected 196K.

Recent strength in economic data also suggests the economy has essentially shrugged off the fiscal brinkmanship in Washington that resulted in a partial shutdown of the government. In addition to the better than expected payroll data; Q3 GDP was revised solidly higher, the ISM Manufacturing Index rose to the best level in over two years, and new home sales surged by over 25% in October.

Worries over a near term tapering will likely remain elevated, although the probability still seems low that the Fed would act ahead of the January 31 leadership transition from Ben Bernanke to Janet Yellen. In addition, the unemployment rate still remains well above the Fed’s 6.5% threshold and inflation remains below their 2% target rate. Also not wanting to be viewed as the “the Grinch that stole Christmas,” the Fed rarely makes policy adjustments during the month of December. 

While markets are likely to remain choppy over the next few weeks as portfolio managers lock in gains and rebalance their asset weightings, the macro environment remains supportive for further upside as we enter into the New Year. The uptick in economic activity should help drive corporate profit growth, the Fed (regardless of tapering) has pledged to keep interest rates pegged near zero, housing continues to rebound, and lower energy prices should make U.S. manufacturers more competitive on a global scale.

The Week Ahead: Data flow in the upcoming week will be relatively light. On the economic front, the focal point will be Thursday’s release of November retail sales figures.  Economists are expecting overall sales to increase by 0.6% as Americans flocked to auto dealers and began their holiday shopping. The data is watched closely as consumer spending accounts for almost 70 percent of U.S. economic activity. Other reports of interest include initial jobless claims (Thursday) and the producer price index (Friday).  A handful of Fed officials will be presenting during the week including Richmond Fed President Lacker, St. Louis Fed President Bullard, and Dallas Fed President Fischer. The Treasury Department is set to auction $21 billion of 10-year notes on Wednesday and $13 billion of 30-year notes on Thursday.

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

ISM Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys. 

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

Past performance is no guarantee of future results. Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no gua rantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.


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