How else can yet another all-time market high be
explained in a week lacking any obvious catalyst beyond the start last Thursday
of the holiday season, a traditionally auspicious time for equities.
Though prices
closed off highs, stocks rose 0.1% in a shortened trading week. Many pros are
looking—maybe hoping—for a sizable stock-market pullback before year end, even
a minor one, but that’s increasingly looking like a low-probability event
against the powerful upward inertia seen all year. Apart from those few
investors who remain short, few will find lumps of coal from Santa this year.
In the eighth-straight week of gains, the Dow Jones
Industrial Average rose 22 points, or 0.1%, to 16,086.41. The Standard &
Poor’s 500 index rose one point, to 1,805.81, down slightly from Wednesday’s
record close of 1,807.23. The Nasdaq
Composite index picked up 68 points, or 1.7%, to 4,059.89.
It’s hard to see anything other than seasonal bias
and inertia behind the latest rise, says Mark Luschini, chief investment
strategist at Janney Montgomery Scott. The market has defied the ubiquitous
correction warnings, “forcing investors to commit long for fear of being
trampled” by the well-known holiday predilection, he adds (Source: Barrons Online).
With Thanksgiving and the holiday season upon us, investors are
getting comfortable. Who’s afraid of the tapering wolf? Fewer investors than
before, if last week’s equity and bond action is anything to go by.
Stock prices
finished higher for a seventh consecutive week, and the major U.S. indexes
closed at—you guessed it—record highs. Equity prices rose 0.4%, but that
includes a recovery from a nearly 1% drop at one point midweek, following
Wednesday’s release of the minutes from the October Federal Open Markets
Committee meeting.
The Fed
reiterated that economic trends would warrant a reduction in stimulus “in
coming months.” The central bank’s $85 billion monthly bond-buying program
has kept interest rates low and fueled the stock-market rally.
Both stock and
bond prices fell sharply after the release of the minutes Wednesday.
Nevertheless, by Friday’s close, equities had recovered all the ground and then
some. Meanwhile, Treasury bond prices also rose from Wednesday’s lows, though
they still fell on the week.
The Fed’s
tapering hints earlier this year elicited much worse reactions, notes Rick
Fier, a trader at Conifer Securities in New York. Wednesday, the bond market
spiked down, but the reaction was “short-lived and that suggests the
market is getting comfortable with the taper,” he says.
Michael Matousek,
head trader at U.S. Global Investors, concurs. “The big money would sell
bonds down hard if they got the idea that tapering is coming [soon].” The
bond recovery in the latter half of the week shows that “no one is in a
rush to sell bonds.”
On the week, the
Dow Jones Industrial Average gained about 0.6%, or 103 points, to 16,064.77 and
the Standard & Poor’s 500 index rose7 points to 1804.76. Both were new
highs. The Nasdaq Composite index added 0.1%, or 6, to 3991.65.
Investor
comfort—or complacency, say the bears—derives from an increasing belief that
tapering is off the table for the short time remaining in 2013, despite one
more FOMC meeting next month. And given that the holiday season is historically
an up period for equities, at this point investors might be more worried about
shopping for gifts than what stocks will do.
Matousek is
betting on tapering to begin in January 2014, and that the market’s upward
momentum will continue until then. It’s hard to see, he adds, the Fed tapering
the stimulus by the end of the year for a couple of reasons. Though U.S.
economic data remain generally positive, there’s no big number to hang the
stimulus reduction on. Perhaps more importantly, Fed Chair Ben Bernanke will
want a smooth transition to his expected successor, Janet Yellen, who, when
approved by Congress, would take over Feb. 1.
If the market is
getting inoculated, by the time tapering begins, will anyone care? (Source: Barrons Online).
