Fed Watchers See Signs of Quicker QE

Weekly Market Report  

Observations on the Capital Markets – Week Ended November 22, 2013:

  • Fed watchers see signs of quicker QE
  • Washington and the world:  Some important developments
  • The capital markets were quiet, except for currency chatter
  • Watching the U.S. economy
  • Watching Europe, Japan and China

Fed Watchers See Signs of Quicker QE
NY Fed President Dudley (a dove) sounded upbeat about the economy in a speech last week. Fed Chairman Bernanke hinted at the Fed moving from quantitative easing (QE) to “forward guidance”, saying “The mix of the tools will change somewhat over time.” Separately, he called the rise in bond yields “unwelcome and unwarranted”.

The FOMC (Federal Open Market Committee) minutes contained no real surprises . . . consistent with the Fed beginning to taper QE soon (data dependent, of course). They showed the Fed talking through lots of ideas.

The Senate Banking Committee sent Janet Yellen’s nomination to the Senate floor; expect her confirmation promptly.

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What is the Current Market Reality?

The Current Market Reality:  Economic Transitions, Equities & Alternatives

At this year’s Global Investment Forum, the discussion among Pioneer investment professionals was generally positive. Of course, everyone was conscious of the current market reality:  that the major force behind recent positive, though benign, market trends is the unprecedented creation of liquidity and extremely loose stance of monetary policies around the world. Monetary policy alone cannot be the only conduit to a new economic model of income growth and job creation. Continue reading

Yellen’s Testimony Not Surprising: Fed Has More Work to Do

 Weekly Market Report

Observations on the Capital Markets – Week Ended November 15, 2013

  • Yellen’s testimony not surprising: Fed has more work to do
  • Last week in the capital markets: The allure of currency devaluation
  • U.S. economic data: Generally consistent with continuing modest growth
  • A sign of sanity from the EPA
  • Watching developments in Europe, Japan and China

Yellen’s Testimony Not Surprising: Fed Has More Work to Do
Janet Yellen’s Senate testimony in last week’s confirmation hearings was very dovish and offered no real surprises. She did not signal or hint at any change in Fed policy (it was a confirmation hearing), but suggested that the best way to achieve an exit from unconventional policy is to deliver a stronger recovery . . . and the Fed has “more work to do” to support that recovery. The risk that she will not be confirmed is considered negligible.

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New Fed Papers Foreshadow a Dovish Fed Policy Under Yellen

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended November 8, 2013

  • New Fed papers foreshadow a dovish Fed policy under Yellen
  • The market rethought its Fed and ECB forecasts
  • Q3 “advance” GDP growth was above consensus
  • Other U.S. economic news was generally positive . . .
  • . . . But scared consumers didn’t borrow or spend
  • Watching Europe, China and Japan

New Fed Papers Foreshadow a Dovish Fed Policy Under Yellen
Two new Fed papers presented at the International Monetary Fund (IMF) argue for prompt lobbying for continued aggressive monetary policy, but suggest prompt tapering of quantitative easing (QE) and more emphasis on forward guidance. The assumption is that these papers would not have been released if Janet Yellen intended to push policy in a different direction . . . and they reinforce the message of papers released at Jackson Hole this summer, suggesting that QE wasn’t acting as effective economic stimulus.

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Taking Stock in the Economy

Now is a good time to take stock in the current macro environment from a market perspective. Here’s what we think could happen at the end of this year and next year:

Stocks and Bonds

  • It’s been a good year so far for equities. The S&P 500 is up around 24% and the NASDAQ is up 30% year to date through 11/5/13.
  • High yield bonds represented by the BofA ML High Yield Master II, convertibles bonds represented by the BofA ML All U.S. Convertibles Index and preferred stocks represented by the BofA Adjustable Rate Preferred Securities Index have clearly outperformed investment grade bonds represented by the BofA ML Corporate Bond Master Index.
  • High yield bonds are up about 6%. U.S. investment grade bonds, despite the Fed’s wanting to get rates back down, are still looking at roughly minus 1.6% returns .
  • The current economic environment has clearly favored the equity markets and instruments linked to equities. Continue reading

Federal Reserve Puts the Fear of a 2013 QE Taper Back on the Table

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended November 1, 2013

  • QE taper back on the table.
  • Last week in the capital markets: The market rethinks its Fed and ECB forecasts
  • Good news for homeowners, less good for home-buyers
  • Progress on the deficit
  • What I learned about Obamacare this week (that you probably didn’t see on TV)

The Federal Reserve put the fear of a 2013 QE taper back on the table. Bonds sold off and the dollar rallied. There was no change in policy, but there was a change in wording of its statement that suggested a December or January taper of Quantitative Easing (QE) might occur. Both the September and October statements said “The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall”…but in September, it had continued by saying, “but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.” The dropping of that phrase (when many were apparently expecting the Fed to cite the negative impact of the government shutdown), along with stronger manufacturing data, led to rising T-bond yields and a U.S. dollar rally. Continue reading


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