U.S. financial market indexes finished slightly higher for the November 21 week. The Dow Jones Industrial Average was up 0.97% while the S&P 500 gained 1.15%. In the Dow Jones Industrial Average, Caterpillar (CAT, Financial), Boeing (BA, Financial) and United Technologies (UTX, Financial) led the index as manufacturing and machinery growth edged higher during the week. In the S&P 500, manufacturing growth was also notable as the materials sector led the index with a 2.8% gain.
The main focus for the week was on the Federal Open Market Committee’s release of its October meeting minutes. In its October meeting the FOMC ended its asset purchase program known as QE3. As expected, the FOMC reported it would cease the purchasing of mortgage-backed securities and long-term Treasury securities. The FOMC reported it would however continue the reinvestment of these securities helping to also continue the effects of the QE3 program. In its most recent balance sheet report on November 20 the Fed reported total assets of $4.493 trillion.
Given the end of the QE3 program, the market’s attention will now focus on the FOMC’s decision to increase the federal funds rate, currently at 0% to 0.25%. The October minutes reported continued improvements in the U.S. economy and alluded to an increase in the federal funds rate occurring mid to late next year. According to the FOMC minutes, market sentiment as identified from “market-based measures” showed a rate increase postponed beyond the third quarter of 2015. However, results noted from the Desk’s October Survey of Primary Dealers showed similar findings from September with dealers indicating a rate increase occurring around June of next year.
With these findings the U.S. market can continue to expect a rate increase in 2015 to occur sometime in the second half of the year. U.S. economic indicators continue to be on track for this to occur. The newest report from the Bureau of Labor Statistics on U.S. employment showed the unemployment rate decreasing to 5.8% with an increase of 214,000 nonfarm payroll jobs in October.
Foreign economies could however effect this timeline. The FOMC noted in its October meeting minutes that effects from global economies and specifically Europe’s peripheral countries could cause unexpected volatility that could further delay the timing of a federal funds rate increase in the U.S.
Next week the PCE Index and GDP data reports will be released. The PCE Index will provide further detail on price stability in the U.S. market. Meanwhile, GDP will also provide indications for overall economic activity in the U.S. Both reports are significant indicators of the U.S. economy’s direction and could provide further insight in regards to the timing of the next rate increase.
