As most investors expected, the Federal Open Market Committee (FOMC) announced the start of their tapering effort but doubled the pace of the monthly taper to $30 billion/month until March 2022, when the effort will conclude. In addition, FOMC members see three, 25-basis-point increases in the Fed Funds interest rate next year, and more in 2023. Faced with the end of a decades-long era of loose monetary policy, historical behavior would indicate interest rates up, equities down. That still seems a good bet despite the market’s immediate reaction to the Fed announcement. Some participants may still be scratching their heads…
Insights & Advice
Tag: tapering
Markets get smacked
Most investors blame the discovery of a new, possibly more virulent mutation of the coronavirus for the decline in stocks this week. No doubt there is some truth to that, but equally as important was the change in monetary policy enunciated by Jerome Powell, the chairperson of the Federal Reserve Bank, this week. Readers have seen the S&P 500 Index decline by about 4% since the Thanksgiving week. The announcement that a new COVID 19 variant, dubbed Omicron, had been discovered in Africa surprised the investment world. Friday, November 26, we saw a substantial 2% downdraft in the financial markets….
The hawks return
On Tuesday, November 30, during testimony before the U.S. Senate Banking Committee, Jerome Powell, Chairperson of the Federal Reserve bank, did an about face on monetary policy. Powell appeared to take on a new mantle, that of the nation’s chief inflation fighter, casting aside his former dovish stance towards continued easing of monetary stimulus. Investors are asking “what changed?” “We’re now looking at an economy that’s very strong and inflationary pressures that are high,” Powell said. He went on to say that it might be “appropriate to wrap up our purchases a few months earlier.” Powell was referring to the…
When will supply chain issues ease?
August 2022. Thank you for coming, everybody. Don’t forget to tip your waitstaff. Oh, you came for more than just the punchline? Well, pull up a chair and listen to me weave an oxymoronic tale of educated speculation. (“Educated speculation” — patent pending on that phrase.) I went to college in the early-to-mid 1990s. Back then, the study of economics was based on Adam Smith’s “invisible hand,” the unseen force that guided our short- and long-run decisions to maximize our financial outcomes. In the 1990s, I was told that I could eat all the candy and bread I wanted and…
Markets snap out of their downtrend
It appears that we have established a range in the stock market over the last few weeks. The bears have not seen their worst predictions come true. My hope is that we leave this month where we entered it. September 2021 was treacherous. Bears were calling for a 10% correction at a minimum. Bulls, already on the back foot after witnessing a 5% pullback in the indexes, insisted we had seen the lows. Since then, we had been bouncing back and forth in a range. This week, however, appears to be a game changer. We have not re-tested the lows…
Deficit deal bolsters markets
Our politicians in Washington, D.C. did what they do best this week by kicking the debt ceiling can down the road until December 16, 2021. Until then, we can switch our focus to the Fed’s November decision on tapering their bond purchases. Does anyone have any Pepto Bismol? Financial markets roared higher on the news of this temporary reprieve, but at what cost? For one thing, the passage of the infrastructure package and the larger social support program that would provide additional stimulus to the economy will likely be delayed until after the debt ceiling is raised. That robs the…
The Dip Buyers return
Last week, investors suffered through the gloom and doom of a declining market. Many Wall Street equity strategists added to the angst by predicting terrible times ahead. I begged to differ, counting on dip buyers to save the day once again. And that is exactly what happened. In case you missed it, last Friday, the S&P 500 Index was at an important level, hovering just below its 50 Day Moving Average (DMA). This had happened several times before since March 2020, and each time buyers appeared to “buy the dip.” “I suspect they will again,” I wrote, “so, no, I…
Some brokers are getting bearish
For four days in a row, the markets closed down. That is in itself unusual. It has only happened four other times since the March 2020 low. Does this portend further downside in September 2021? On Friday, the markets bounced back. The damage to the averages has been minimal thus far. But given how far we have come, more and more brokerage houses (Goldman Sachs, Deutsche Bank, and Morgan Stanley, among others) are warning that the September-through-October 2021 time frame could see a 10% correction. How much weight should you give these gloomy predictions? If you are a short-term day,…
Investors are chasing stocks higher
The proverbial Wall of Worry provided plenty of foot holds for investors this week. The major averages continued to make new highs (or hovered just below them) despite bad news and focused instead on anything that could justified higher prices. The belief that the Delta variant of the coronavirus may be peaking in the worst-hit states was enough to cheer investors. Not that the extremely contagious infection ever had much of an impact on the markets anyway. Still, the hope that Delta has peaked gave added umph to large cap growth stocks. Helping this summer’s move higher was almost $30…
You’re not as rich as you think you are
“If you have a tax preparer, you do not have a tax planner.” —James Pollard’s CPA “Tax preparation is focused on getting this year’s tax return prepared and to the IRS … it’s all about what happened this last year. Let’s get it done and move on … the contrast to that in tax planning is taking a forward-looking approach to saying, ‘what can we proactively do to make sure that we’re minimizing how much we have to pay to the IRS?’” —Steven Jarvis, CPA I recently listened to James Pollard’s “Advisor Coach” podcast with guest Steven Jarvis, CPA. Non-industry folks won’t recognize those…
A week of surprises keeps investors hopping
There were plenty of reasons why the stock market was a bit jumpy this week. Let’s go through them. Two weeks ago, I wrote that I was worried “that we could suddenly see a spike in new Delta variant cases that impacts economic growth. Remember that less than half of all Americans are fully vaccinated. President Biden, his Chief Medical Advisor, Anthony Fauci, and the Fed are all sounding warnings over this risk, yet the markets are ignoring it.” Investors finally caught on this week and began to realize the risk presented by the Delta variant and its impact on…
A churn at the top
It was a sleepy week in the markets for the major averages. Stocks flirted with the old highs, only to fall back by the end of the week. Energy and a few meme stocks occupied most of the attention. Crude oil spiked higher, nearing almost $70 a barrel (bbl), pulling energy stocks along with it. Energy traders were heartened by the latest OPEC meeting. The cartel expects demand to outstrip supply by more than a million barrels a day for the foreseeable future. As a result, the members intend to gradually increase production as the global economy gathers steam. Most…
Fed puts markets on notice while crypto crashes
It had to happen at some point with economic growth spiking as high as it has, and inflation beginning to creep up. Investors should have expected the Fed to think about a change in policy. This week, we had our first mention of the dreaded “T” word. T is for taper and in the minutes of the Fed’s April FOMC meeting released on Wednesday, the entire financial community jumped on just one phrase: “it might be appropriate at some point” to consider tapering asset purchases if the economy shows “rapid progress.” In other words, the Fed is signaling that they…