Friends
So, here is what we heard from the FOMC and Chair Powell this afternoon. It seems likely that the Fed will begin the tapering process (reducing asset purchases) in November or December of this year and that the process will take about 8 months which means it should conclude around midyear 2022. Of course economic conditions and data can always change things. With regards to raising interest rates it appears that the Fed is considering that late 2022 into 2023 is when we could see that begin. In the short run the Fed has tempered its enthusiasm towards the economy given the effects of the Delta variant. But, all in all, the Fed Chair sounded like he was ready to move forward with the tapering process by the end of the year.
You may ask, why do we spend so much time worrying about when the Fed begins the tapering process or when the Fed will start to raise interest rates. Remember the old Wall Street adage which we talked about all the way back in late 2008 and into early 2009- “don’t fight the Fed”? Don’t fight the Fed means when the Fed is accommodating like they have been over much of the past decade, stocks are supported by money flows and tend to move higher. The other side of that is when the Fed tightens/becomes hawkish money flows are adversely affected and stocks tend to struggle during those periods. The Fed knows that very well, thus Chair Powell’s excruciating attempts to prepare the markets for the inevitable move away from emergency monetary policies. He knows that the Fed has to reduce accommodation and move rates back to “normal”. He just doesn’t want the markets to freak out about it, or have another taper tantrum like we saw in 2013.
As for the markets, stocks were higher before the Fed announcement and the market averages were able to hold onto those gains into the close. For the day, the Dow Jones Industrial Average was up 338 points to close at 34,258. The S&P 500 was up 41 points to finish the day at 4,395. The Nasdaq Composite Index was up 150 points to close at 14,896. Gold was down $10 to trade at $1,768 per ounce, while oil was up $1.67 to trade at $72.16 per barrel WTI.
Despite yesterday’s failed rallies, the bulls were resilient during today’s trading session. We didn’t close on the highs, but at least most of the gains were able to be held onto. With the Fed meeting behind us let’s see what the rest of the week has in store for us.
Have a nice evening everyone.
