Endowment Wealth Management-Weekly Market Update as of December 20, 2013 by Prateek Mehrotra

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Weekly Market Highlights:
•Domestic stock prices surged on the week. Stock prices posted their largest weekly advance since October on the Fed’s decision to begin tapering next month, as well as today’s report that third quarter GDP growth was the fastest since the fourth quarter of 2011. The S&P 500 has advanced about 27% so far this year, on pace for its best annual performance since 1997.
•Global markets were mostly higher for the week. World markets generally advanced in line with domestic U.S. markets this week, as investors were encouraged by accelerating momentum in the U.S. economy. European stocks in particular posted robust gains, with Germany’s DAX Index rising +4.3% in its best weekly showing  since July.  Asian stocks trailed this week as a cash crunch in China  caused the Shanghai Composite to tumble -5% for the week.
•Treasury prices were lower this week. The yield on the benchmark 10-year U.S. Treasury was higher as the Fed announced its tapering decision this week.
•Commodity indices were mixed on the week. The energy complex rose sharply; precious and industrial metals declined; and grains were mixed.

S&P 500 Operating Margins

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S&P 500 Operating Margins

Do you think that the high Operating Margins will hold in 2014?

The major drivers for the high Operating Margins in 2013, viz. productivity, technology and cheap imports, should help again next year.  Other factors like cheap energy and lower effective tax rates should continue to help as well. Plus, we do not see excesses in business investment, inventory or debt (personal or commercial) in 2014.

Persistently high profit margins should help equities in 2014.


Number of the Day-12/20/2013

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1 Billon

Mark Zuckerberg will likely pocket about $1 billion from his first stock sale since Facebook’s initial public offering, part of a complex transaction in which the founder and chief executive also plans to donate stock valued at roughly $1 billion to charity.

(Source: Wall Street Journal)

Start of Tapering…

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I am posting below the Federal Reserve Bank of New York Statement Regarding Purchases of Treasury Securities and Agency Mortgage-Backed Securities: 

On December 18, 2013, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase additional agency mortgage-backed securities (MBS) at a pace of about $35 billion per month and longer-term Treasury securities at a pace of about $40 billion per month, beginning in January 2014.  The existing December schedules for agency MBS purchases at a pace of $40 billion per month and Treasury securities purchases at a pace of $45 billion per month remain in effect until that time.  The FOMC also directed the Desk to maintain its existing policies of reinvesting principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in agency MBS and of rolling over maturing Treasury securities at auction.  The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

Purchases of agency MBS will continue to be concentrated in newly-issued agency MBS in the To-Be-Announced (TBA) market, and purchases of longer-term Treasury securities will continue to be distributed using the existing set of sectors and approximate weights.  These purchase distributions could change if market conditions warrant.

The amount of agency MBS to be purchased each month and the tentative schedule of Treasury purchase operations for the following calendar month will continue to be announced on or around the last business day of each month.  Additionally, the planned amount of purchases associated with reinvestments of principal payments on holdings of agency securities that are anticipated to take place over each monthly period will be announced on or around the eighth business day of the month.

Consistent with current practices, the purchases of agency MBS and Treasury securities will be conducted with the Federal Reserve’s eligible counterparties through a competitive bidding process and results will be published on the Federal Reserve Bank of New York’s website.  The Desk will continue to publish transaction prices for individual operations at the end of each monthly period. All other purchase details remain the same at this time.

Additional information on the purchases of agency MBS and longer-term Treasury securities can be found in a set of Frequently Asked Questions for each asset class in the following locations:

FAQs: Agency MBS Purchases »

FAQs: Purchases of Longer-term Treasury Securities »

Baltic Dry Index-Is this a Leading Indicator?

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Baltic Dry Index-5 Year Price Chart Dec-2013

The BalticDry Index is issued daily by the London-based Baltic Exchange and provides “an assessment of the price of moving the major raw materials by sea”, like, iron ore, coal, grain, cement, copper, sand and gravel, fertilizer and even plastic granules.

Since it targets real-time shipping rates, which fluctuate based on supply and demand, subjectivity can’t creep into the readings. Day in and day out, it provides a snapshot of global economic activity at the earliest possible stage.

Year-to-date, the index is up nearly 230%. It now rests at its highest level since late 2010.

Can this be a sign of global recovery improving in 2014?