Another interesting day in markets as the Federal Reserve made another “historic” policy move – this time (as expected) replacing Operation Twist with even more quantitative easing (an additional $45B a month). This raises the monthly purchases of bonds (mortgage + government) to $85B a month – indefinitely. Further rather than a specific data – which had been mid 2015 but constantly pushed out – the Fed named an inflation target of 2.5% and an unemployment target of 6.5% where it would BEGIN to consider stopping the constant flooding of money into the system. But in his news conference, Bernanke said those are only guideposts not absolutes. The S&P originally had surged on MORE QE news, as it always does but gave it all back by the end of the day, finishing up a measly 0.04% while the NASDAQ dropped 0.28%. If you have been following along, each iteration of QE has been creating less and less of an effect in markets. Recall, after the last one was announced on Sept 15, the market surged that day, rallied the next – then began a two month slide.
Netflix shares rose after Morgan Stanley analysts increased their price target on the video rental company.
Homebuilders had a strong day after a few weeks of struggling as the Mortgage Bankers Association’s index of applications rose 6.2% last week and the group’s purchase measure reached the highest level in a year.
Highly recommended is this economic presentation by bond guru Jeff Gundlach – it is mostly slides with pictures so not as dry as you’d expect. Talks a lot about the major issues in the economy near and long term.