The Daily Difference: Market Update December 19, 2013

Yesterday, the Fed announced they will in fact start to taper asset purchases: $75 billion per month vs. $85 billion. In response, the yield curve steepened and the stock market skyrocketed. The market’s reaction was partially due to the Fed’s outlook (obviously confident, if scaling back asset purchases) and partially due to the  impressive housing starts number (up 22.7% MoM). Wait!!! Cold water doused the market this morning. Despite the Fed’s upbeat outlook, jobless claims delivered a disappointment (379k this week vs. 337k consensus). Given the Fed’s decision to initiate the taper was supposed to be predicated on an improving labor market, today’s number should add some confusion and uncertainty (uncertainty = down market).

In addition, today’s existing home sales number delivered another disappointment: 4.9 M vs. the consensus 5.02 M.  It seems as if demand is weakening at the same time the home builders are ramping it up (sound familiar?). Given the Fed has stressed their process is dynamic and they have the ability to increase asset purchases if the economy starts slipping, it will be interesting to see if there is a reaction to today’s weak labor and housing numbers.