The Motley Fool

Is Ben Bernanke Santa Claus?

US Federal Reserve chairman Ben Bernanke has kicked off the Santa rally, after announcing that quantitative easing will be tapered back by US$10 billion to US$75 billion.

US Markets loved the news, with the Dow Jones Industrial Average (Index: ^DJI) soaring 1.8%, the S&P 500 (Index: ^GSPC) climbing 1.7% and the NASDAQ adding 1.2%. Locally, the SPI Futures suggests the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) will open 51 points higher.

The Australian dollar (CCY: AUDUSD=X) has fallen against the greenback after the US Fed taper announcement and is now buying 88.6 US cents.

Signs the US is recovering include:-

  • An unemployment rate that fell to 7% in November, a five-year low
  • retail sales climbed the most in five months in November – a sign that consumers are back spending
  • industrial production in November increased by the most in a year
  • and, low interest rates are prompting consumers to buy homes or refinance, which has ignited a recovery in the housing market

The US Federal Reserve has indicated that it will keep interest rates low for some time, saying it “was a long way from raising borrowing costs”, and its benchmark rate was likely to stay low, even “well past the time that unemployment declines below 6.5%”.

The news augurs well for stock markets, which appear to have been expecting the Fed to stop its quantitative easing completely, despite repeated comments that the US central bank was likely to slowly take its foot off the accelerator, rather than slam on the brakes.

Foolish takeaway

One has to wonder now what markets have been so worried about, with the ASX 200 dropping in eight of the last nine days. Bring on the Santa Rally!

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