MoneyShow's Jim Jubak discusses the implications of the Fed's recent policy announcement and what it may mean for the stock market going into the end of the year.
On December 12, the Federal Reserve announced that it was going to keep putting money into the economy, billions and billions. Even though Operation Twist, which puts about $45 billion into the markets, was due to end at the end of December, the Fed is going to keep it going.
So basically, you’re looking at a situation where the Fed has decided and told people that they’re going to put $85 billion a month into the financial markets. They’re going to do it by buying Treasuries, by buying mortgage backed assets, whatever.
This really sets you up—and we’re doing a look-ahead for the rest of December, not just one week—this really sets us up for the rest of the money that the market was looking for the Fed to say this. They were looking for the Fed to come in with almost exactly this amount.
The speculation was a $45 billion replacement for Operation Twist. That’s what the Fed has announced. The market got exactly what it wanted, and I think what that does is set us up for the market to try to drive an end-of-the-year rally.
You will always have people trying to make up performance at the end of the year. This has kind of been a tough year. You’ve had a lot of people who were short the market who got burnt. A lot of people were lagging the index. It would be really great if people could make up a point, two, three, or four in a December rally and look a little better at the end of the year, and I think that’s the hope.
That’s what you’re going to have the market attempting to do. The fear that the Fed is going to not support the market is gone. In fact, the Fed is going to support the market. I think you’ve got a chance that we’ll maybe see another week, another two weeks of rally.
And then we move into 2013. The books are closed and all bets are off,and we start all over again trying to figure out what this crazy market is going to do. I think for December, the odds are the market is going up. I don’t think necessarily this is guaranteed, but the market certainly would like to, or at least the participants in the market who are lagging this year would like to finish the year on a strong note.