Tuesday, June 24, 2014

Daily Bullets …….for June 24, 2014


·         Economic growth accelerating…….Philly Fed President Charles Plosser today stated that the U.S. economic growth is accelerating faster than expected and that current economic strength is broad-based.
What’s the point? There has been considerable debate about the pace of U.S. economic growth both for the short and long term. Plosser’s comments support our view that the pace of U.S. economic growth should accelerate this year which, in turn, should be positive for corporate profits. Corporate profits are the primary driver of stock prices over the long term. We think the stock market at its current all-time high levels is already discounting, at least in part, the expected improvement in corporate profits in 2H-14. We have seen forecasts calling for growth in corporate profits of as much as 10% in 2H-14. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140624&id=17724994

·         Plosser: Additional important commentary.....In his speech today, Fed President Plosser also stated that the due to faster economic growth, the Fed may have to accelerate its plan to increase interest rates and that the Fed should move to a “rules based” policy system.
What’s the point? Plosser’s comments today are giving investors greater insight into the current thinking at the Fed regarding interest rate and monetary policy. The comments are very important because of the extreme policy by the Fed over the past five years.  Plosser’s comments reveal the extent of divided thinking at the Fed: the Yellen (highly accommodative) position vs. the Plosser camp that inflation is more of a risk. Additionally, the fact that Plosser would address the topic of a “rules based” policy regime for the Fed reflects a further evolution in thinking at the Fed about  not only policy but also about communicating that policy clearly to the financial markets and thereby reducing  policy uncertainty and confusion among investors, which we believe has historically added to market volatility. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140624&id=17724994

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