U.S. stocks surged on Wednesday, December 18, with the S&P and Dow closing at record levels. Financial experts say that this jump was in reaction to the Federal Reserve's announcement that it would begin to taper its bond-buying program to $75 billion a month from $85 billion. The central bank says that it expects the labor market to improve and will continue to keep interest rates low.
"Investors are looking past the taper and looking at the strength of the economy that is perceived with this news," said Chris Gaffney, senior market strategist at EverBank, to CNBC. "The Fed did a great job telegraphing it to the markets, as stocks are moving in the opposite direction than you'd think."
The Fed also announced that it would reduce its purchases of long-term Treasury bonds and mortgage-backed securities by $5 billion to $40 billion and $35 billion, respectively.
David Kelley, managing director at JPMorgan Funds told the source that the Fed's decision was logical, as the unemployment rate now stands at 7 percent and home sales have increased. He also noted that the S&P is up 25 percent from the beginning of the year.
Nine out of ten of the Fed's voting members supported the tapering decision. The only dissenter was Eric Rosenberg, president of the Federal Reserve Bank of Boston. He is against the taper because unemployment and and inflation rates are still not at optimal levels.
Outgoing Fed Chair Ben Bernanke said in his final press conference that he expected the job market to continue to grow in the next year, triggering further reductions in bond buying.
The long-term effects of tapering are unclear, but by using SmartStops' portfolio monitoring tools, you can keep your risk to a minimum.
Categories: Stock News