Thursday, December 18, 2014
Stocks cheered the Fed announcement yesterday, and the mood is certainly carrying into today’s session as well. Market participants like the fact that there will be no early rate hikes and that the central bank will remain cautious and patient.
It may have taken the Fed ‘considerable time’ to become ‘patient,’ but they came across on balance to be happy with how the economic picture was unfolding. The committee members see GDP growth in the 2.6% to 3% range and expect the unemployment rate to drop to the 5.2% to 5.3.
What this means is that they see the economy approaching ‘full employment’ level by the end of the year. It certainly looks that way when you evaluate the labor market from the prism of the last non-farm payroll report or the type of jobless claims numbers we have been seeing lately, including this morning.
The Fed is obviously watching the inflation situation, but it doesn’t see the oil price drop as problematic and is able to look past the disinflationary aspect of the price plunge. What the markets took from the Fed statement and the Chairwoman presser was that there will be no early rate hike and they aren’t worried about global growth issues.
All in all, the Fed was successful in telling the markets the that they are in no hurry to ‘normalize the stance of monetary policy.’ With some of the more hawkish committee members retiring in the coming days, the FOMC will likely become even more cautious and risk averse in 2015 as it starts the monetary policy normalization process.
Beyond the Fed, we have been seeing companies report results for their November quarter, which we count as part of our December quarter tally. We got a solid report this morning from consulting and outsourcing firm Accenture (ACN), which provides favorable read through for its consulting peers like IBM (IBM).
We should note, however, that while Accenture offered positive qualitative commentary about their business, they expect increased foreign exchange headwinds in 2015. Unlike Accenture, ConAgra’s (CAG) came out with a mixed report – inline earnings, but missed revenues with its outlook confirmed. Nike (NKE) will report after the close today.
Sheraz Mian
Director of Research
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