Chris Ciovacco: The taper surprise was that stocks rocketed higher once the markets digested the Fed’s statement. The market chose to focus on the improving economy rather than a reduction in monetary stimulus. From The Wall Street Journal:
“Today’s policy actions reflect the [Fed’s] assessment that the economy is continuing to make progress, but that it also has much farther to travel before conditions can be judged normal,” Mr. Bernanke said. Beth Ann Bovino, chief U.S. economist at the bond-rating firm Standard & Poor’s, said in a note to clients after the decision, “Today’s decision by the Fed is a vote of confidence in the sustainability of the economic recovery.” She pointed to a batch of stronger economic reports for October and November, in addition to reduced political uncertainty.
Stock Market Held Near Logical Support
It was a wild ride after the release of the Fed’s latest policy statement. The S&P 500 initially reacted to the term “taper” and dropped 13 points below Tuesday’s closing price. The taper sell-off was short-lived as investors began to focus on the glass-half-full side of the argument, or an improving economic outlook. In the end, the economic bulls carried the day with the S&P 500 finishing 42 points off the post Fed announcement low. The broader NYSE Composite Index also attracted buyers at a logical level (see chart below).
Low Rates Even When Unemployment Falls
Part of the market’s ability to digest the taper news in a somewhat surprising bullish manner, was the Fed’s emphasis on keeping interest rates low for an extended period. From Bloomberg:
Homebuilders rallied after the Fed said it may hold interest rates near zero even if unemployment falls below the 6.5 percent rate the central bank previously cited as a likely catalyst for an increase.
Buyers Push S&P 500 To New Closing High
When markets push to new highs, they can often attract buyers that have been waiting to see if overhead resistance holds. The bullish conviction was strong enough Wednesday afternoon to push the S&P 500 to a new closing high. As we noted on December 4, stock market corrections are often preceded by a discernible lower high on a weekly chart (see A and B below).(...)Click here to continue reading the original ETFDailyNews.com article: Investment Implications On The TaperYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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