Its been one hell of a year for equity markets this year, with the Dow Jones Industrials breaking the key 16,000 level in November and currently sitting at 15,755. That’s a 20% gain for the year to date, with the index opening at 13,104 at the beginning of January. The FTSE 100 has significantly lagged the U.S. indices predominantly because of the number of resource stocks in the U.K.’s top flight index, which have under performed the winners of 2013 like healthcare, technology and small caps. It is up 9.2% year to date at its current 6,440, up from 5,897 at the beginning of 2013. The big question is what will happen in 2014 after the exuberance of 2013?
A key plank of the large gains in U.S. stock prices has been the actions of the Federal Reserve. Pumping in $85 billion a month in quantitative easing to buy Treasury bonds, keeping down long term interest rates and aiding liquidity for institutions to invest in racier assets.
Next week the Federal Reserve’s FOMC (Federal Open Market Committee) meets on December 17 and 18th to discuss whether to start tapering the amount of support the Fed is putting into the U.S. economy. Last week markets were weak on the back of nerves that the FOMC may announce immediate tapering rather than in March which seemed the previous assumption.
Former Federal Reserve vice chairman Donald Kohn believes the central bank may dial back monetary stimulus next week. Kohn, who was a final contender to replace Ben Bernanke and represents one of the highest-profile Fed watchers to predict a cut to QE. On Thursday, Kohn told clients of political consulting firm Potomac Research Group that it’s a close call but chances are now 60-40 that the FOMC starts cutting QE when it announces its intentions on December 18th, predominantly because of Thursday’s strong retail sales report.
However, a Reuters poll released last week showed that just nine of 63 economists surveyed believe the Fed will taper in December. No surprises next week could mean a final year end “Santa Rally”, but last weeks falls in the market indices was a non surprising bout of profit taking given the large gains that many funds have banked in 2013.
The Fed has said it will not move on interest rates until unemployment is at 6.5%, the latest data shows unemployment at 7.3%.
The U.S. Senate is expected to approve President Barack Obama’s nomination of Janet Yellen to chair the Federal Reserve next week and if so she will start some time in February. Yellen taught UC Berkeley and six years running the Fed’s San Francisco region, would be the first woman in the post succeeding Ben Bernanke. Yellen is married to fellow Cal professor emeritus George Akerlof, who won the Nobel Prize in economics in 2001.
Last week she told the Senate’s banking committee that “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Ms. Yellen said in her testimony before lawmakers. “I consider it imperative that we do what we can to promote a very strong recovery,” she said. “Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
Gold languishes at $1238 and if the Fed tapers early, it’ll be more bad news for the yellow metal. It is down from $1689 at the beginning of 2013, a drop of 27% year to date. The traditional inflation hedge has struggled, as inflation has failed to materialise in Western Economies despite the deluge of central bank currency printing. When the Fed does finally stop QE, probably in 2014, Gold will struggle to find friends.
With equities looking far from cheap on current price/earnings multiples, I am struggling to see where to put my own money in 2014. Certainly resource stocks look relatively good value and AIM oil and gas and FTSE 250 oil look very, very cheap. With Brent oil likely to stay above $100 a barrel in 2014 with the constant geo-political risks, the likes of Premier Oil looks pretty enticing. Certainly sectors like property and technology look fully valued right now.
Interesting times to come in Q1 2014!
Contrarian Investor UK
IMPORTANT
The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.
Tags: equity market performance 2013, fomc december 2013
by contrarianuk
Markets look to key Fed meeting next week
Dec 14, 2013 at 8:31 am in Market Commentary by contrarianuk
Its been one hell of a year for equity markets this year, with the Dow Jones Industrials breaking the key 16,000 level in November and currently sitting at 15,755. That’s a 20% gain for the year to date, with the index opening at 13,104 at the beginning of January. The FTSE 100 has significantly lagged the U.S. indices predominantly because of the number of resource stocks in the U.K.’s top flight index, which have under performed the winners of 2013 like healthcare, technology and small caps. It is up 9.2% year to date at its current 6,440, up from 5,897 at the beginning of 2013. The big question is what will happen in 2014 after the exuberance of 2013?
A key plank of the large gains in U.S. stock prices has been the actions of the Federal Reserve. Pumping in $85 billion a month in quantitative easing to buy Treasury bonds, keeping down long term interest rates and aiding liquidity for institutions to invest in racier assets.
Next week the Federal Reserve’s FOMC (Federal Open Market Committee) meets on December 17 and 18th to discuss whether to start tapering the amount of support the Fed is putting into the U.S. economy. Last week markets were weak on the back of nerves that the FOMC may announce immediate tapering rather than in March which seemed the previous assumption.
Former Federal Reserve vice chairman Donald Kohn believes the central bank may dial back monetary stimulus next week. Kohn, who was a final contender to replace Ben Bernanke and represents one of the highest-profile Fed watchers to predict a cut to QE. On Thursday, Kohn told clients of political consulting firm Potomac Research Group that it’s a close call but chances are now 60-40 that the FOMC starts cutting QE when it announces its intentions on December 18th, predominantly because of Thursday’s strong retail sales report.
However, a Reuters poll released last week showed that just nine of 63 economists surveyed believe the Fed will taper in December. No surprises next week could mean a final year end “Santa Rally”, but last weeks falls in the market indices was a non surprising bout of profit taking given the large gains that many funds have banked in 2013.
The Fed has said it will not move on interest rates until unemployment is at 6.5%, the latest data shows unemployment at 7.3%.
The U.S. Senate is expected to approve President Barack Obama’s nomination of Janet Yellen to chair the Federal Reserve next week and if so she will start some time in February. Yellen taught UC Berkeley and six years running the Fed’s San Francisco region, would be the first woman in the post succeeding Ben Bernanke. Yellen is married to fellow Cal professor emeritus George Akerlof, who won the Nobel Prize in economics in 2001.
Last week she told the Senate’s banking committee that “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Ms. Yellen said in her testimony before lawmakers. “I consider it imperative that we do what we can to promote a very strong recovery,” she said. “Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
Gold languishes at $1238 and if the Fed tapers early, it’ll be more bad news for the yellow metal. It is down from $1689 at the beginning of 2013, a drop of 27% year to date. The traditional inflation hedge has struggled, as inflation has failed to materialise in Western Economies despite the deluge of central bank currency printing. When the Fed does finally stop QE, probably in 2014, Gold will struggle to find friends.
With equities looking far from cheap on current price/earnings multiples, I am struggling to see where to put my own money in 2014. Certainly resource stocks look relatively good value and AIM oil and gas and FTSE 250 oil look very, very cheap. With Brent oil likely to stay above $100 a barrel in 2014 with the constant geo-political risks, the likes of Premier Oil looks pretty enticing. Certainly sectors like property and technology look fully valued right now.
Interesting times to come in Q1 2014!
Contrarian Investor UK
IMPORTANT
Tags: equity market performance 2013, fomc december 2013The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.