Stocks Consolidates on Weak Data
Stocks in the US started the trading session nearly flat, and ended in the same fashion, as investors absorb Wednesday announcements by the Federal Reserve. Data in the US continues to be slightly stronger than expected while the Senate was able to pass the budget which should remove some uncertainty from the markets. On Thursday the Labor Department released jobless claims.
The FOMC coupled a 10 billion tapering of its bond purchase program with dovish forward guidance. Most analysts did not think the Fed would begin the process of removing stimulus at the December meeting. In fact nearly 4 of 5 believed the Fed would begin in March 2014.
The Fed coupled their reduction of bond purchases with forward guidance that was dovish. The Fed will begin to purchase 75 billion of fixed income products in January removing 5 billion of treasuries and 5 billion of agency bonds from their purchases. The Fed also stated that their target for increasing rates and removing stimulus might not come until the unemployment rate drops well below their target of 6.5% unemployment.
The FOMC also discussed the need to increase inflation. They stated that there could be problems with the economy if inflation remains well below their target of 2%. The current gauge of inflation which is the PCE reported by the Commerce Department shows a level of 1.1% year over year.
Today’s economic releases show us why the Fed will remain dovish for a period of time. Jobless claims increased 10,000 to 379,000, according to the Labor Department. That was the highest level since March and marked the second straight week of higher claims. Economists had expected claims to fall to 334,000 last week. The four-week moving average for new claims increased 13,250 to 343,500.
In the housing space, the National Association of Realtors reported that existing home sales fell 4.3 percent to an annual rate of 4.90 million. That’s the weakest pace since December 2012. The median sales price of an existing home was $196,300 in November, a slight decrease from October.
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