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Have the Capital Markets Spoken or Is This Just Reaction to the Fed?

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.” Ben Bernanke

 

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Markets and the Federal Reserve

Earlier this week, at the conclusion of its Policy Meeting, the Federal Reserve (the “Fed”) announced it will likely begin to pull back on its “easy money” policy, popularly referred to as “Quantitative Easing”. Per the policy, the Fed has been buying approximately $85 billion of mortgage backed securities per month. The purchase of these securities has helped to keep interest rates low and thus has provided liquidity to businesses and individuals at relatively very low rates.

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What Sector Will Lead the Market Next?

For the last year, SYM has emphasized the large cap value sector within managed client portfolios. This gave clients an overweighting to dividend-oriented companies in defensive sectors like healthcare, consumer staples, utilities and telecom. It also meant less exposure to materials, industrials, energy, and technology stocks.

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All Time High

It would be easy to conclude the bull market in US stocks is over now that we have hit new highs. Many underinvested bears will proclaim stocks must be overvalued and it’s just a matter of time before the stock market takes it all back. But dig a little deeper into the fundamentals of the success story of American corporations. For instance, since hitting a low point in the financial crisis of 2009, dividends that are paid to shareholders have soared. For the stocks in the S&P 500, for instance, quarterly dividends have risen nearly 70%, and payments have surpassed the previous high set in 2007, just before the financial crisis hit.

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''Sequessure''

SYM Definition: Downward pressure on the equity markets due to the looming potential start of sequestration on March 1st.

 

The media noise will continue to pick up this week as we approach the March 1st deadline for Congress to act or accept mandatory cuts in spending. Media accounts are positioning the sequester as a negative for economic growth and the stock market, but we doubt the looming spending cuts will be as negative as they are portrayed.

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