For the first time in five years, the Fed shifted policy and guess what? The world kept spinning! In fact, stocks soared on the news that the central bank would reduce its monthly bond purchases by $10 billion to $75 billion and keep short-term interest rates at rock-bottom levels. I guessed last week, that “Given what the Fed has told us, now would seem to be the right time to start unwinding the policy. If there is a change to policy, it’s not likely to be anything to dramatic-probably a reduction of $10 to 15 billion per month, evenly split between treasury securities and mortgage-backed securities.” What I did not anticipate was a central bank Christmas bonus: not only would the pull-back in bond buying occur slowly, but the Fed plans to keep short-term interest rates at near zero, even after the unemployment rate dropped below 6.5 percent, which likely means that rates will stay low at least for another year.
Put a different way, it’s like your parents announcing that they will reduce the proof of the punch bowl booze from 85 to 75 AND the party will continue right through next year! Sure, the festivities may not be quite as much fun in six months from, when the proof drops to 45, but for now, let the good times roll (h/t The Cars)!
MARKETS: Finally, a REAL milestone. The Dow hit a new inflation-adjusted high on Friday. The blue chip index had to reach 16,186.39 to have the same buying power (based on CPI) it had when it was worth 11,722.98 on January 14, 2000, according to the WSJ.
- DJIA: 16,221 up 3% on week, up 23.8% on year
- S&P 500: 1818, up 2.4% on week, up 27.5% on year (best week since July, on track for best year since 1997)
- NASDAQ: 4104, up 2.6% on week, up 36% on year (18% below 3/00 all-time high of 5,048)
- 10-Year Treasury yield: 2.89% (from 2.87% a week ago)
- Jan Crude Oil: $99.32, up 2.5% on week
- Feb Gold: $1203.70, down 2.5% on week, down 28% on year (on track for first annual decline in 13 years)
- AAA Nat'l average price for gallon of regular Gas: $3.24
THE WEEK AHEAD: Take a load off…it should be a quiet, holiday-shortened week!
8:30 Personal Income and Spending
8:30 Chicago Fed National Activity
9:55 Consumer Sentiment
8:30 Durable Goods Orders
9:00 FHFA Home Price Index
10:00 New Home Sales
1:00 Markets close early Christmas Eve
Weds 12/25: GLOBAL MARKETS CLOSED FOR CHRISTMAS
8:30 Weekly Jobless Claims
Long-term unemployment benefits expire for 1.3 million Americans