Hello folks
Well, to say that Dec 18 was a “good day” in the markets would be an understatement. The FOMC released a statement, after having met on Dec 17 and 18, and said that they plan to start a very gradual tapering of QE in January of 2014. Note that this is mostly in line with my Dec 10 update on this site, in which I stated that the FOMC would “take no action” on QE until 2014. My opinion was somewhat correct, but not completely, as the “action” they took was the decision to start the taper. However the actual taper will begin in 2014. 2013 will finish out unchanged and with no tapering activity.
The Dow Jones reacted with a gain of 292 points, and some sites (I have not personally done the math on it) reported that any and all losses in the markets in December, were reversed, in today’s strong action. The SPY tracking stock, which mirrors the SP 500, traded 50% above its average volume, clearly a strong sign of credibility behind the move upward today. This reflects that institutional money returned to the markets today, in large numbers.
The Washington Post published an opinion piece today, in which they basically repeated what I already told my subscribers in Point #4 of my December 10 post, regarding my position that the economy is indeed recovering. Allow me to pat myself on the back and state that my subscribers received basically the same analysis eight days ago.
Small cap stocks (S-Fund) responded well, and outperformed everything else today, with large cap stocks (C-Fund), taking second place, and international stocks (I-Fund) taking third place, in daily performance. This market reaction is in accordance with my existing TSP Allocation. The TSP funds which gained the most, one-day, on Dec 18, were not the L-Funds, G-Fund, F-Fund, etc, but S-Fund, and C-Fund. Readers may note that my personal TSP Allocation has been 50% S-Fund and 50% C-Fund.
Readers may recall my Sept 10 post, in which I stated that markets do not like uncertainty on important issues. The reduction of QE, a federally driven program, and impacting world financial markets, is clearly in this category. However for a large part of 2013, the markets have been handicapped by this fog of uncertainty, and in recent months, have displayed difficulty navigating higher thru this fog. Not shockingly, when the FOMC made its position known today (with no taper action until 2014), the markets swallowed this like a hungry animal. The modest taper (versus a more aggressive taper) likely contributed to this, which was basically the FOMC saying “We are tapering, but…” Note that if the taper was more aggressive, my position remains that the market would have received this as negative news. Instead, the FOMC decided it was time to leave the kiddie pool (ankle-deep) and move to knee-deep water. In what appears to be a sound decision, the FOMC has decided that the diving-board deep side of the pool is not something the economy is ready for yet.
In other news, reports on new home construction reflect that in November 2013, more new homes have been built, that at any other time in the prior 5 years. This added additional propellant to the rally.
I have no cool charts or graphics today, as my TDY internet wi-fi (thank you Residence Inn) is extremely slow.
In summary, today’s events are very positive and I am very optimistic for things in the near future. Lets see how December finishes out. Expect some naysayers to come out of the woodwork and some slight sell offs in the next few weeks. However you don’t go up 292 points in one day, for no reason. My current TSP Allocation remains 50% S-Fund and 50% C-Fund.
Thanks for reading and talk to you soon…….Bill Pritchard
