11-15-2013 12:58 PM
By John Toohey, Vice President, Equity Investments
The likely next head of the Federal Reserve said what she was expected to say this week, and the markets responded with record-setting enthusiasm.
Janet Yellen, nominated to succeed Ben Bernanke in 2014, indicated that she embraces a continuation of Bernanke’s loose monetary policies. She told the Senate Banking Committee that the Fed would eventually have to begin the so-called “taper” – a gradual pullback on its $85 billion per month bond-buying program. But, she stressed, now is not that time because the U.S. economy remains fragile, and there’s no telling at this point when that time might be. She also said that she does not see any asset bubbles inflating in either the stock or housing market.
Yellen’s stance on the taper helped send the S&P 500 to yet another all-time high on Thursday, and it was up further in Friday’s early trading, closing the week at 1798.20, up 1.61%. The Dow, also in record territory, pushed closer to 16,000 and the Nasdaq was within sight of 4,000 – a level last seen in 2000 during the tech boom. U.S. Treasuries also rallied, with yield on the 10-year down 0.04% to 2.70%, while the price of an ounce of gold closed the week at $1290.20, up 0.12% for the week.
Mixed indicators make it difficult to determine how close we are to taper time. The labor market has been in a positive trend (although this week’s initial jobless claims were slightly higher than expected) and the latest economic activity report from the Chicago Fed showed above-average growth. On the other hand, industrial production for October came in weaker than expected, as did the November survey of New York manufacturers.
A number of key monthly reports next week may offer some clarity on the nation’s economic direction. These include the Consumer Price Index (inflation), the Producer Price Index (wholesale prices), retail sales, existing home sales and mortgage applications.
Looking further ahead, a recent drop in gasoline prices could bode well for retail sales during the all-important Christmas shopping season.
And as the New Year approaches, markets will again turn their attention to Washington. Last month’s deal to reopen the federal government only provides funding through mid-January, and the current debt ceiling only runs through Feb. 7. A plan to fund the government for the rest of the 2014 fiscal year is scheduled to be issued by Dec. 13.
For more insights on the markets, read our investment outlook for the third quarter.
USAA Investments Managed Portfolio Outlook
Our view of caution toward risk assets remains unchanged. We remain slightly overweight in bonds and cash in our diversified managed portfolios. For investors interested in income-oriented bond investments, the USAA Intermediate-Term Bond Fund, the USAA High Income Fund and the USAA Income Fund are examples. For investors interested in tax-free income, the USAA Tax Exempt Long-Term Fund, the USAA Tax Exempt Intermediate-Term Fund and the USAA Tax Exempt Short-Term Fund are examples.
We also have a small position in gold and precious-metals mining stocks, which we view as attractive as a long-term inflation hedge. For investors seeking exposure to precious-metals mining stocks, the USAA Precious Metals and Minerals Fund is an example. The USAA Real Return Fund also provides potential protection against the risks of long-term inflation.
Emerging markets represent another opportunity. Though they were hit especially hard recently, we believe that emerging markets remain attractive. They offer both an interesting long-term prospect for growth and compelling valuations. The USAA Emerging Markets Fund offers exposure to stocks in less-developed countries.
As always, we encourage investors to speak with one of our financial advisors, who can help determine which investment vehicles are best suited for you based upon your individual goals, objectives, risk tolerance and time horizon.
This material is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing.
Consider the investment objectives, risks, charges and expenses of the USAA mutual funds carefully before investing. Contact us at 1-800-531-8910 for a prospectus containing this and other information about the funds from USAA Investment Management Company, Distributor. Read it carefully before investing.