Welcome to 2013!
We hope you had (or are lucky enough to continue to be having) a terrific Christmas and New Year Break. You will be pleased to know, if you do not already, that the Fiscal Cliff was largely averted in the US. This sparked a significant rally in share prices (+3.2% in two days) as investor relief fed its way into the market.
Typically however markets will start looking towards the next drama, which comes in the form of debt ceiling negotiations in the US that will really take hold in mid to late February. Lets also not forget Europe, of which coverage remains very quiet indeed.
Last nights market action saw US equities fall with concerns over the possibility that the Federal Reserve could start to wind back stimulus as early as later this year. This seems unlikely given recent statements by Ben Bernanke in regard to achieving an unemployment rate target of 6.5% (currently 7.7%). However what is clear is that the ongoing global stimulus has been effective in inflating asset prices (including shares) and any end to this would pose a risk.
The old adage is 'dont fight the Fed' however, and with interest rates domestically falling and dragging returns on basic cash and deposit products with them, in addition to historically low bond yields then shares are proving to be by default the asset class of choice.
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