The market suffered its first weekly decline since June. Basically some Fed officials floated the idea of “tapering” in September. “Tapering” refers to a reduction in the Fed’s asset purchase program, which currently amounts to $85 billion per month. The Fed has explicitly stated that tapering is data dependent. In this regard, the monthly jobs report is what the Fed is watching. Good reports increase the likelihood of tapering. What I think is happening, and my opinion is based solely on speculation, is that the Fed is floating tapering comments to test the market’s reaction. The market generally moves before news. If support holds in the face of reduced stimulus, I’m going to take that development as a positive. What to keep in mind here is that tapering is less stimulus in the face of improving economic conditions. Just because the Fed stimulates less does not automatically mean that the stock market will collapse. Improving economic conditions could very well more than offset reduced stimulus and lead the market higher. Do I know any of this will happen? Absolutely not! Instead I will watch the market. A move above 1710 in the S&P 500 would signal that the market is no longer concerned about reduced stimulus. On the other hand, a move below 1670 would reflect concern. I think we’ll find out after next month’s jobs report.
Posted on: Sat, 10 Aug 2013 22:05:46 +0000
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