If Santa Claus and Hanukkah Harry hosted a huge joint holiday party on Wall Street in December, this is what it would have looked like: The Dow (^DJI 1.05%) surged 293 points and the S&P powered up 16 points to send both stock indexes to record highs. Merry mazel tov.
1. Federal Reserve surprises with small stimulus cut
2. Ford plummets 6% on profit worries abroad That's a wrap. The Federal Reserve ended its eight-times-a-year, two-day policy meeting on Wednesday with a press conference starring Chairman Ben Bernanke. We assume the central bank's bender involves a bunch of hazing, fraternity paddles, and binge reading of econ textbooks, but the big decision this time was on "tapering" its stimulus policy. The Fed's cutting its stimulus program from $85 billion in monthly bond purchases to $75 billion.
What's that mean? Since way back in '08 when the financial crisis showed up, the Fed has instituted three huge rounds of unconventional stimulus, known as "quantitative easing" (hence the nickname "QE"). Under QE3, the Fed has been buying $85 billion of long-term bonds monthly to keep interest rates super low -- low interest rates encourage borrowing by consumers to spend cash money on economy-boosting products, like pink Shake Weights.
Why the snip? Because the Fed thinks the economy is starting to pick up its pace and will need less stimulus support. Although retail sales may not be killing it this holiday season, housing prices are up, GDP readings are topping expectations, and monthly employment reports have showed some impressive gains over the course of 2013. Not too shabby.
The takeaway is that investors love stimulus because it pumps cash into the economy. So recently, Wall Street's been worried that the Fed would end stimulus sooner than expected -- but on Wednesday, investors were relieved/pumped/aroused because that $10 billion cut to QE3 is not nearly as big a slash as they thought it would be. The stimulus love will continue, and the tapering itself is a nod of approval from the top bank that the economy is looking better, my friend.
What the "F"? Ford Motor Co. (F 1.53%)shareholders watched in horror today as their stock dropped 6% Wednesday while the rest of the market charged upward. Ford management issued a press release saying their goals to hit 8%-9% operating profit margin by 2016 are at serious risk and that 2014 earnings won't be as strong as once forecast.
Who's guilty here? Venezuela, for one. Ford expects a currency devaluation for Venezuela's currency, the Bolivar. The problem is, Ford's got a major assembly plant there and a devaluation would have a negative $350 million effect on the company's earnings next year.
Asian competition in America is another reason for reduced profit expectations. Toyota (TM 0.40%) execs must be furious that Ford's sexy Fusion sedan is creeping into the Camry's 12-year rule as the top-selling car in America. Fierce competition from Asian car manufacturers will put pressure on Ford's North American profits as well. Finally, Ford reiterated that it's very tough to sell cars in Europe right now.
To sum it up, Ford's been rocking since 2010 and its stock is up 41% in the last 12 months. But it is required by law to disclose all relevant information to shareholders that could affect profits -- shareholders were weeping while the rest celebrated the positive signal of the end of the Fed's emergency stimulus policy. A reduced earnings future for Ford had investors fleeing from the stock.
Thursday:
- Weekly Jobless Claims
- Existing Home Sales
- Philadelphia Regional Manufacturing Survey
MarketSnacks Fact of the Day: While cameras are rolling, all of the "Real Housewives" on Bravo's reality TV series are contractually obligated to make all their personal phone calls on speakerphone, read all opened emails aloud, and accept all editing by the producers. No plugs of their personal sponsors allowed, either.
