Fed’s ‘All-Clear’ Lifts US Equities; Europe Recovers From Cyprus Drop

Ulli Market Commentary Contact

Wed pic

[Chart courtesy of MarketWatch.com]

Equities recovered from yesterday’s minor pullback, with the S&P 500 Index snapping its first three-day decline of the year, after the Federal Reserve said it would continue to support the US recovery (AKA continuing its relentless money printing efforts) while eurozone leaders mulled options for Cyprus.

Speaking to reporters at the conclusion of the two-day FOMC meeting, Fed Chairman Ben Bernanke said he didn’t find anything out of line with the stock market’s rise, citing growing optimism. Policymakers left the central bank’s $85 billion a month bond purchase plan unchanged as long as unemployment remains above 6.5 percent and inflation forecasts don’t exceed 2.5 percent.

The committee, however, lowered its expectations for the unemployment rate at the end of the year to a range of 7.3 – 7.5 percent, from an earlier forecast of 7.4 – 7.7 percent. Economic growth forecast for the year was revised down between 2.3 and 2.8 percent from an earlier estimate of 2.3 and 3 percent.

Stocks rallied earlier as investors speculated the European Central Bank will continue to support the Cypriot banks until next week, after the lawmakers voted down an unprecedented levy on private bank deposits.

The Dow Jones Industrial Average (DJIA) finished 56 points higher after rallying to a new intraday high of 14,546.82.

The S&P 500 Index (SPX) added 10 points with consumer companies leading the gains among its 10 major industry groups.

Treasury prices snapped a three-day winning streak, pushing yields up for the first time in four sessions after the Federal Reserve reiterated its commitment to buy government securities to sustain the economic recovery.

The dollar eased up against majority of its 16 most-traded peers after the US Fed said it would continue to stimulate the economy through reckless quantitative easing.

European stocks, meanwhile, reversed a three-day slide Wednesday as investors looked ahead to the US Fed’s latest monetary policy decision and mulled over Cyprus’ continuation in the currency bloc.

The Stoxx Europe 600 index climbed 0.3 percent to close at 296.50, rebounding from Tuesday’s 0.4 percent decline.

Trading on the Cyprus stock exchanged was suspended and banks remained closed for a second day as politicians rushed to cobble together an alternative plan to end the country’s debt woes.

The European Central Bank, whose governing council is scheduled to meet in Frankfurt today, is likely to delay emergency liquidity to Cypriot banks, according to media reports.

Our Trend Tracking Indexes (TTIs) followed the markets higher and reached the following positions above their respective trend lines:

Domestic TTI: +3.59%

International TTI: +9.36%

We remain fully invested, predominantly in low volatility ETFs, subject to our trailing sell stops.

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