The Federal Reserve has repeated many times over the preceding months they would maintain an accommodative monetary policy until the U.S. unemployment rate was at 6.5% or inflation had reached 2.5%. Perhaps that was the shocker, when the Fed leaders announced they would possibly end the $85 billion monthly bond purchases in 2013. That is not to say that QE is over, if the benefits can facilitate growth, there is the possibility that they may be reignited at a later date or just continued. "Operation Twist" is taken from the 60s, where Treasury debt instruments are long on the long-term paper and short on the short-term paper was due to expire 2013. The Fed had since added the $45 billion bond purchases per month to add further easing.
U.S. Congress authorized a tax cut bill on January 1 making the Bush reductions permanent for the majority of the population. U.S. individuals earning $400,000 per year or households earning $450,000 per year or more will see an increased tax rate to 39.6% from the previous 35%. Taxes on capital gains and dividends will see an increase to 23.8% from the previous 15%. The E-Mini S&P 500 was braced for a potential washout as the lawmakers negotiated through the eleventh hour.
The deal affects the upper 2% income brackets and yet there is still much to be done. Spending cuts and the debt limit remain on the table and in the eyes of the credit rating agencies, there is no meaningful improvement in the government's debt ratio. Recalling the Standard & Poor's credit rating downgrade of the U.S. in August of 2011, the effects on the stock indices can be quite severe. The U.S. economy remains fragile and could still dip into a recession this year. Credit ratings agencies are looking for a long-term plan of deficit reduction. Moody's credit rating agency had warned the agreement in place does not address the long-term concerns for debt reduction. The U.S. needs to now focus on raising the debt ceiling. The $16.4 trillion debt ceiling must be addressed by mid-February.
ADP reported the private sector added 215,000 employees in December while the previous month's reading was a revised 148,000. U.S. Initial Jobless Claims increased by 10,000 to 372,000 last week. The continued claims increased by 44,000 to 3,245,000 with an extra week lag time. The U.S. Institute for Supply Management of New York's current business conditions index increased to 54.3 in December while the previous reading was 52.5. Any number over 50 points to expansion. The U.S. Bloomberg Consumer Index increased to -31.8 last week from -32.1 the previous reading. For the year, the Bloomberg Consumer Comfort Index increased 12.9 points. U.S. Auto sales came in at a 15.3 million annual rate while the previous month's reading was at 15.5 million annual rate.
Earnings season begins next week which may reflect the market uncertainty during the "fiscal cliff" saga. U.S. Institute for Supply Management Factory Index increased to 50.7 in December from 49.5 on the previous reading. Any number over 50 points to expansion. U.S. PMI increased at 51.6 while the previous reading was at 50.4. Anything over 50 points to expansion. The Chicago Business Barometer was known as the Chicago Purchasing Manager's Index and is owned by the German exchange operator Deutsche Boerse AG. U.S. Pending Home Sales Index increased 1.7% to 106.4 in November while the previous reading was 5.2%. Mortgage rates remain extremely low. U.S. building permits for November were revised to up 3.7% to a seasonally adjusted 900,000 rate.
E-Mini S&P 500 Chart.
Friday, what to expect? We maintain a bullish bias until the (March) E-Mini S&P 500 penetrates $1386.50. Friday, we anticipate an inside to higher to outside day. Today's range was $1460.50 - $1450.00. The market settled at $1453.30. Our comfort zone or point of control for this market is $1454.00. Our anticipated range for Friday's trading is $1467.50 - $1441.50.