Wednesday, December 11, 2013 -
U.S. stocks fell on Wednesday, as investors feared a new Congressional budget deal may encourage the Federal Reserve to move forward eventual QE Tapering, even as early as next week’s FOMC meeting.
Stocks were smacked hard today. Investors are growing increasingly more cautious with just a few more trading days ahead of next week’s FOMC meeting (ending on Wednesday). Nervousness over tomorrow’s retail sales report also contributed to sending traders scrambling to the sidelines and hedging portfolio positions.
The major indexes moved slightly up off their intraday lows going into the close but still ended the day firmly in the red. The Dow slid 130 points (-0.8%) to 15,845, the Nasdaq tumbled 57 points (-1.4%) to 4,004 while the S&P 500 slumped 20 points (-1.1%) to 1,782 and the small cap Russell 200 led on the way down again, dropping 18 points (-1.62%) to 1102.
A congressional budget agreement, announced by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., after the close of trading on Tuesday, essentially guaranteed to fund the government for two years (think no government shutdowns) along with unusual spending concessions for the republican side of the aisle. This sudden bipartisanship appears to have convinced the markets that the Fed now has plenty of ammunition to argue for scaling back asset purchases – much sooner than anyone has been expecting.
Bipartisan budget expands spending
Today we learned there is no opposition party any longer when it comes to government spending as Republican leaders reached a deal with Democrats before the holiday break that reverses some of the sequestration spending cuts over the next two years, which according to former OMB director David Stockman adds $70 billion back into the US budget over the next two years.
The budget deal is expected to pass both the Senate and the House, with the president also solidly in favor of the deal. Certainly, this group of politicians is in no mood to tackle runaway government spending. Honestly, did we expect anything different?
Yet, this budget deal had a serious impact on the stock market today as it begins to remove fiscal uncertainty. If you remember, one of the reasons why Ben Bernanke said they postponed the bond tapering last September was because they anticipated a government shutdown in October (fiscal uncertainty).
Now that a fiscal deal has been worked out, the idea of bond tapering in December is back in the spotlight, at least from the perspective of . . . . . .
Click here to continue . . .
. . . Click here to continue . . .