The first two weeks of December are, thankfully, behind us. Last week was one of the worst downticks of the year, with the S&P 500 sliding by 2.2% before catching Monday’s solid bid off its key 50-day moving average.
Analysts have attributed the selling pressure almost entirely to the two-day FOMC meeting that concludes Wednesday, with the Fed announcing its forward fiscal policy at 2:00 p.m. ET.
To say this meeting is the most anticipated event of the fourth quarter, if not the year, would be an understatement. Most market professionals claim that Fed tapering has to a large degree been priced into equities already. The selling of the front end of December was sparked by strong economic data, leading investors to fast-forward the expected beginning of the Fed reducing QE from March to January.
Monday’s solidly higher reading on industrial production (1.1% versus 0.4% forecast) only added to the heightened state of anticipation of near-term tapering — but because of some new catalysts at work, a pivotal shift in sentiment occurred from yesterday’s opening bell, and today’s session looks to build on that shift. Attention is quickly turning to big-name blue-chip stocks that are hiking their dividends, splitting shares and announcing monster stock repurchases: the tangible stuff that rallies can really feed off of.
It started last week with MasterCard (MA) announcing a 10-for-1 stock split, an 83% quarterly dividend hike and a new $3.5 billion-share buyback. Then came Goldman Sachs’ (GS) big upside call on ExxonMobil (XOM), which propelled that stock to a new all-time high.
This was followed last night by Boeing (BA) announcing a $10 billion buyback and raising its dividend by 50%. And this morning the headline crossed the tape that 3M (MMM) provided forward guidance at the upper end of its range and will boost its dividend by 35%.
This kind of highly bullish news flow is rapidly taking center stage at just the right time, as there is a prevailing sense of vulnerability for the market when the Fed removes the punch bowl possibly before New Year’s. The notion of whether the market is ready for the taper — and just how it will trade come the reality of it — is a jump ball at this point.
I, for one, think that the Fed will talk more generically about tapering sometime in the first quarter, affording a semblance of certainty to future policy while at the same time letting the bulls finish out the year on an upbeat note.