Wednesday, December 18, 2013

Waiting On The Fed

Markets are mixed in early trading, but the first half of today's session is likely to be lackluster ahead of the FOMC announcement.  The Fed's policy announcement will come at 2pm EST with some thinking we will hear the Fed announce their intention to 'taper' their asset purchases.

Our opinion is that there is not enough strong data yet, and with Bernanke on his way out as Chairman we think it is more likely he will wait for Yellen to begin the taper sometime in early 2014.

In corporate news, Jabil Circuit (JBL) has a poor earnings report last night and lowered guidance for next quarter.  Investors are worried that some of that weakness could be related to AAPL, whose stocks is also lower so far today.

On the plus side, Lennar (LEN) reported a solid quarter and that is helping to lift the homebuilding stocks. 

The 10-year yield is also a bit higher to 2.88% on the heels of stronger than expected November building permits and housing starts reports.

Asian markets were mixed overnight.  China's housing prices rose 9.9% year/year.  And Japanese exports increased 18.4%.  As an aside, China is cracking down on bitcoin use and that has caused the virtual currency to plummet overnight.

Europe's markets are mostly higher today.  The Bank of England voted unanimously to keep interest rates and their asset purchase program unchanged.

The volatility index closed above 16 yesterday but today is lower to 15.83. 

Trading comment: The S&P 500 has been stuck in the middle of this trading range above its 50-day average but below its overhead 20-day average.  If today's FOMC statement is met with further selling it will likely mean a test of the 50-day support for the SPX in the 1775 range.  But if folks view the Fed statement as a glass-half-full scenario then we could see buyers emerge and breakout of this recent consolidation.  One thing to remember is that often the initial reaction to the Fed isn't the true trend and its better to see how investors react in the day or two following the Fed.  We are still expecting another push higher into year-end, but it could begin from lower levels than we sit today.


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