03|04|2016

Taper, Taper, Taper… Sick of it yet???

The Federal Reserve Board (FRB) has finally reduced its bond purchase program, but what needs to be remembered is that the program was reduced from $85 Billion in monthly purchases to $75 Billion in monthly purchase.  This means there is still a heavy amount of stimulus in place.

 

The market responded with a flocking of buys, much like “the salmon of Capistrano.”[1]  This response was very different to how it has responded over the last 7 months.  Typically any talk of Taper has led to the market retreating.  This time the market applauded the decision recognizing two things.

  1. The decision reflects a strengthening of the US Economy.
  2. There was a dovish undertone to the Federal Open Market Committee’s (FOMC) statement.  Meaning, they were very clear to say that if the economy didn’t improve they would very quickly replace the bond purchases and potentially extend purchasing buy amount and duration.

 

Last week the 3rd Quarter revised GDP numbers came out and annualized rate was revised up from 3.6% to 4.1%. A major part of the revision was consumer spending increases, whereas the original data was greatly attributed to inventory increases ahead of the fourth quarter.  This is great news, our economy goes as the consumer goes, that’s because consumption makes up 70% of GDP.

 

Lastly, the Consumer Price Index (CPI), a measure of inflation, has increased 1.2% year over year while a year ago it was up 1.8% year over year.  Inflation continues to be a non-factor to this current economic expansion.

 

Internationally; Standard & Poors reduces the EU’s credit rating from AAA to AA+, UK unemployment fell to 7.4%, and the Bank of England has discussed a 7% threshold as where they would consider raising short term interest rates.

 

If you would like an in-depth analysis of your current positions and allocation, please feel free to call Jason Roque at 719-313-7536 to schedule an appointment.

 

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.  Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

 

Sources: mfs.com, oppenheimerfunds.com, investing.com, yahoo.com, and morningstar.com

 

* Financial Action, Inc. is a Registered Investment Advisor.


[1] Dumb and Dumber (1994)