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TO TAPER OR NOT TO TAPER - By WSS Research Desk

Dec. 17, 2013 1:59 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

By Carlos Guillen

After making a strong move to the upside yesterday, the Dow Jones Industrial average is looking for direction so far into today's trading session. Apparently, data that showed no increase in the prices of goods was well received at the start of trading, but that was short lived. A bit later, there was better than expected housing data, which gave markets a bit of a boost, but that also faded. Now eyes will be focused on the next step in monetary policy, which will be announced tomorrow.

Perhaps a bit encouraging today was that increases in the cost of living appeared to be under control this past month. According to the Department of Labor, the Consumer Price Index (CPI-U) in November was flat month-over-month; this compares with the Street's consensus estimate calling for a 0.1 percent rise. Excluding food and energy contributions to the price index, core CPI increased month-over-month by 0.2 percent, while economists' average forecast called for a 0.1 percent rise. The fact that total inflation is still rather muted most recently is certainly encouraging for consumers as they are continuing to support economic growth in the short term. Moreover, low inflation certainly gives the Fed more reasons to keep its 85 billion-a-month in bond purchases intact, at least for the short term, which certainly can bode well for equity markets. Tomorrow we will see what actions the Federal Open Market Committee (FOMC) will make in reference to slowing its asset purchases, but from the looks of this they may hold back from tapering a bit longer.

Also rather encouraging was data from U.S. home builders that showed they are feeling increasingly confident as the year comes to an end, giving a strong indication that the housing sector is adjusting to higher interest rates. According to the National Association of Home Builders, its housing-market index rose to 58 this month from 54 in November, landing above economists' estimate of 55 and reaching its highest level since August, when higher mortgage rates started slowing the housing rebound.

While the good news did move the needle on equities momentarily, this was also short lived, and faded quickly. As it stands, stocks are trading slightly in losing territory as anticipation builds in light of the Fed's decision tomorrow on whether to taper or not to taper. While there is a chance that some form of reduction to the Fed's bond buying program will occur, it is very small, and the word on the Street is that the likelihood is only about 10 percent.

Homebuilder Confidence Up Again
By David Urani

The NAHB/Wells Fargo Housing Market Index (HMI), a measure of homebuilder confidence, showed a gain from 54 in November to 58 for December. That matches the August reading, and is an eight year high. The consensus had called for a modest increase to 55 so this comes as surprisingly good news. It was driven by a big increase in the present conditions component, which was up from 58 to 64, while expectations for the next six months were up from 60 to 62, and traffic was up from 41 to 44.

But as continues to be the case, what homebuilders are reportedly seeing is not being seen by the market, which remains skeptical of the industry. Housing stocks, as measured by the Dow Jones US Home Construction Index (DJUSHB), are still off more than 20% from the May highs. Likewise, the stocks are down today with the broad market. Nevertheless, the NAHB notes the increase in mortgage rates in the back half of this year has not hurt demand.

https://www.wstreet.com/user/register.asp?source=3

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