Today's historic Fed day started with a whimper and ended with a
To the surprise of most on Wall Street, the Fed announced it was
tapering $10 billion from its $85 billion-per-month bond-buying
program, taking down Treasury and mortgage-backed security
purchases by $5 billion each.
Heading into the meeting, various polls from investment banks and
media outlets showed very low confidence in a taper.
However, the Fed highlighted "cumulative progress toward maximum
employment and the improvement in the outlook for labor market
conditions" as reason to go forth with a $10 billion taper most
expected would come in January at the earliest. The committee also
said further purchase reductions are on the table, dependent upon
labor market and inflationary trends.
Additionally, and perhaps more importantly, the Fed said it "likely
will be appropriate to maintain the current target range for the
federal funds rate well past the time that the unemployment rate
declines below 6.5%, especially if projected inflation continues to
run below the Committee's 2% longer-run goal." This effectively
pushes monetary tightening even further into the future.
(INDEXSP:.INX) dropped a quick 10 points on the taper news to
1767.99 before squeezing higher to finish at 1810.65, up 1.66% and
within striking distance of the all-time high of 1813.55.
(INDEXCBOE:VIX), widely watched as a fear indicator, collapsed on
the Fed news, going from an intraday high of 16.75 down to 13.80.
(INDEXNASDAQ:.IXIC) slumped on a relative basis courtesy of a dip
in key momentum stocks, namely, top index component Apple (
). The stock dropped 0.8% as the company's expected iPhone
distribution deal with
) failed to come to fruition.
On the fixed-income side, the 10-Year US Treasury yield initially
spiked as high as 2.929%, just under the recent high of 2.932% on
December 6. That was followed by a hard reversal lower to 2.824%
before a rebound back to 2.885%, which is basically where it was at
the start of the meeting.
During the press conference, Fed Chair Ben Bernanke more or less
indicated that today's action is the beginning of the end for
quantitative easing as the program will likely be phased out by the
second half of 2014.
Elsewhere on the economic front, this morning, November Building
Permits came in at 1,007K, above consensus estimates of 990K. The
October number was also revised up to 1,039K from 1,034K.
Additionally, October and November Housing Starts were above
Tomorrow's Financial Outlook
Thursday will be a busy day on the economic front, with Jobless
Claims, the Philly Fed, Existing Home Sales, and Leading Indicators
all on the table.
We'll also receive some notable earnings reports, namely
), and KB Home (
) before the open, and
(NKE) after the close.