This will be the final market Watch Weekly of the year as we all get ready for the Christmas Holiday season.
Wednesday of this week the US Federal Reserve gave the global capital markets a very clear outline of their tapering strategy with respect to the Quantitative Easing Bond and Mortgage buying program they have engaged in for the last couple of years. The markets have responded well to clarity.
Starting in January the Federal Reserve will begin reducing its monthly bond and mortgage purchase program by $10 billion, with an indication that the reduction will move in equal $10 billion increments until the program is reduced to zero. Thus 2014 will be a year of stimulus reduction, as the economy looks to be strengthening.
Ben Bernanke, in his last FOMC meeting as Chairperson, maintained that these moves will be highly data-dependent and that they could accelerate or decelerate the pace of stimulus reduction as needed. We would lean towards the acceleration side of that comment as we received very strong GDP expansion data this morning. The US Commerce Department released this morning that the rate of economic expansion in the United States for the third quarter was faster than previously estimated, coming in at 4.1%.
Inventories accounted for roughly one third of the gain in GDP (Gross Domestic Product) in the third quarter, showing us that companies remain confident about the prospects for demand. Strong retail sales in both October and November underscore this confidence and support the Federal Reserve’s belief that the economy is close to being able to stand on its own.
Robert Pavlik, chief market strategist at banyan Partners in New York, said in an interview on Bloomberg today that “The market is feeling somewhat confident. It is encouraging as an investor and consumer to see GDP up at these levels. GDP reaching 4 percent makes you feel good about the economy and where we are headed.”
While we expected the tapering to begin with incoming Federal Reserve Chairperson Janet Yellen in January, we agree with the outline the outgoing chairperson Ben Bernanke has provided. When we look at this morning’s GDP report we saw that growth came nearly all segments of the economy; consumer purchases increased at 2% which was above the 1.4%, business inventories rose at nearly 1.7%, non-durable goods spending rose at 2.9%, spending on services rose at 0.3%. Added to this broad sector growth we also saw falling unemployment, as the US economy added just over 200,000 workers to payrolls last month.
The recurring theme here is broad growth from all segments of the economy, thus we see reasonable growth for both the Canadian and American economies for 2014.
As we look back over the last year we see both happy and sad times throughout the world, so as you gather with friends and family over the holiday season, take a moment to enjoy the loved ones around you.
Have a very happy holiday season with friends and family.
The Dekker Hewett Group