DOW, S&P 500 at Record Highs As Investors Prepare For Second Half of 2014

punch The Dow and S&P 500 reached new record highs on Friday after the U.S. non-farm payroll jobs report showed 217,000 jobs were added in May, the fourth consecutive month of job gains over 200,000 while the Volatility Index (VIX) of the S&P 500 dropped to the lowest level  since January 2007 as  market fears have been put aside for now.

Since January 2, 2014 the S&P 500 has climbed 6.41 percent, the Nasdaq is up 4.30 percent, and the Dow has risen 2.94 percent.

Bullish investors are  placing their hopes on the U.S. economy remaining strong  during the second half of 2014 with the summer season kicking off on June 21st and no major fiscal hurdles on the way this year, in sharp contrast to 2013 that saw the federal government being shut down over fiscal wrangling on Capitol Hill.

During the first half of 2014, the Federal Reserve has reduced their asset purchases of its third quantitative easing (QE3) program by a pace of $10 billion per month to $45 billion  in May, down from $85 billion at the start of January 2014 as the U.S. economy picks up steam and the central bank feels less of a need to take accommodative actions to boost economic growth.

Short term interest rates (federal funds rate) remain at a record low of .25 percent since the depths of the recession in 2008.

Federal Reserve Chair Yellen has signaled a spirit of flexibility about how the Federal Reserve will manage interest rates in the future.

“As always, our policy will continue to be guided by the evolving economic and financial situation, and we will adjust the stance of policy appropriately to take account of changes in the economic outlook” said Fed Chair Janet Yellen before the Joint Economic Committee, U.S. Congress, Washington D.C. on May 7, 2014. 

On Thursday the European Central Bank (ECB) decided to take more decisive actions over how it confronts a slow growing economy in the 18 member euro area with low inflation levels that are well below the ECB’s target just under 2 percent.

The ECB agreed to cut interest rates to new record lows while taking  its overnight deposit rate into negative territory to -.10 percent.

The ECB also announced plans to undertake a targeted long term refinancing operation (TLTRO) that aims to improve lending to the euro area non-financial private sector, excluding loans to households for house purchase, over a window of two years.

All TLTROs will mature in September 2018.

The ECB said that it will intensify preparatory work related to outright purchases of asset-backed securities (ABS). 

-Johnathan Schweitzer

 

 

 

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