Market Update: Fed’s ‘taper-lite’ decision propels markets higher – 19.12.2013

Source: Henderson Global Investors

US equities surged to record highs yesterday (S&P 500 +1.7%; Dow Jones +1.8%; Nasdaq +1.2%) as investors welcomed the decision by the US Federal Reserve’ (Fed) to pursue a gentle tapering of its asset purchases – which some analysts have dubbed ‘taper-lite’. After months of waiting, there is now some clarity around how the central bank will begin stepping back from the extraordinary stimulus measures it introduced in the wake of the global financial crisis. The Fed said it would reduce its monthly purchases by US$10bn per month, split evenly between treasuries and mortgage-backed securities. Sounding a dovish note it guided that it would “likely be appropriate” to hold interest rates at near zero “well past” the US unemployment rate falling below 6.5%.

European shares are at two-week highs this morning, tracking gains in the US yesterday. Overall sentiment appears to be that the Fed is achieving the right balance in removing some stimulus given signs that the US economy is strengthening. The FTSE Eurofirst 300 is up 1.4% at the time of writing, while the FTSE 100 is 1% higher. Cyclical areas of the market are outperforming, including financials, materials, construction and property.