This week has been a boon for the markets. With a fiscal cliff deal in sight, the S&P 500 stock index surged from 1402 to 1426 on Monday, New Year’s Eve. The market continued its rally on Wednesday closing at 1462.
The Fiscal Cliff Deal
The Fiscal Cliff legislation, officially known as H.R. 8, was passed by Congress in a late session on January 1st. The legislation includes various changes including a new top tax bracket of 39.6%, long term capital gains and dividends for the new tax bracket are to be taxed at 20%, exemption phase outs, itemized deduction phase outs, a permanent increase in the estate tax exemption, and too many other changes to list in this synopsis. Next week I’ll write a blog post on the Fiscal Cliff deal and cover all of the changes in much greater depth.
For Those That Are Interested In A Copy, The Fiscal Cliff Legislation Can Be Found At Business Insider
Fed Becoming Worried About Stimulus Side Effects
The Fed met in December to discuss their quantitative easing policies for the next few years. For a quick overview, quantitative easing involves the Fed purchasing Treasury bonds and mortgage backed securities from other institutions in the open market. To pay for the bonds and securities, the Fed prints money. In this way the Fed increases the money circulating on the open market and impacts interest rates. So, when the Fed makes an announcement, the financial community listens.
On Thursday the minutes from the December meeting were released and show that even Federal Reserve officials are becoming increasingly wary about their growing balance sheet, which just topped $2.9 trillion. Despite this wariness the Fed is poised to continue buying $40 billion in mortgage backed securities and an now plans to purchase an additional $45 billion in Treasury bills each month. They plan to continue to keep interest rates near zero until the unemployment rate reaches 6.5%, so long as inflation does not increase beyond 2.5%.
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For my clients: This month we will begin rolling out our new portfolio management software with all of its snazzy new bells and whistles. I’ll conduct a training webinar later this month that will teach you how to utilize the new client portal.