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The strength of US economic fundamentals has begun to shift the balance of support for share prices. The Fed’s stimulus, the driver of stock index gains for so much of the year, is now receding slightly in importance, with the slack being taken up by a trend of advancement in macroeconomic indicators.
Jobless claims was the latest upbeat report, with data released earlier today showing 42,000 fewer Americans claiming first-time jobless benefits last week. The plunge from 380,000 in the week prior to 338,000 is most probably slanted by adjustments caused by the Christmas period, but the stock market has responded positively to the news nonetheless.
By mid-morning in New York, the Dow had pushed higher by 64 points or 0.39% to 16,421, after earlier setting a new intraday record of 16,431.27, while the S&P 500 climbed 0.28% to 1838.5, also setting a new all-time high early in the trading session. Both the Dow and S&P are on course at these levels for record closing highs.
USD/JPY earlier reached its highest level in more than five years, as market participants continue to speculate that the monetary policies of the Fed and the Bank of Japan are moving further apart.
Minutes from the last BOJ meeting showed at least one board member believes that slowing GDP data could be a long term trend rather than a temporary phase, which raises the possibility that the central bank could be forced to implement more aggressive policies to stimulate growth.
The Fed is set to reduce the size of its stimulus from $85 billion of bond purchases per month to $75 billion in January, with further reductions a very real possibility at the next few FOMC meetings.