Looking at equities today–and the interest rate complex, it seems like markets are a bit on edge as we await the Federal Reserve Open Market Committee meeting results on Wednesday. Both the DJIA and the S&P500 are off 1/4 to 3/4% with the 10 year treasury up 2-3 basis points.
Right now the results of that meeting are likely more tentative than we have seen for near a year. Prior to this particular meeting I was confident they would continue a steady policy course–QE of $120 billion monthly, but now it would seem that the Fed would have to announce a consideration of a taper on QE–I really doubt their announcement will be more than a ‘consideration’ of a taper.
Of course as always we simply wait and watch. History shows that one can’t really prepare for these types of events. I suppose one could hedge with various instruments–but in the end hedges aren’t free and it is likely a cost will be incurred for nothing.
The one item that concerns me is how little concern there is over a taper. Everyone seems to have bought into the ‘transitory’ story that any deviation may be greeted strongly–oh well I won’t lose sleep over something so uncontrollable.
7 thoughts on “Markets Seem On Edge with Fed Meeting”
Willam Cohan has an interesting Guest Essay in Today’s NYTtimes.
I’ve traded before Fed meeting a few times with no effect one way or the other. So I’ll stick to my normal strategies.
An immediate change in Fed policy is useful information. What they say they’re thinking about doing in two years if nothing changes isn’t meaningful to me.
I’ve been selling some of my winners to cash in on the nice cap gains some of these holdings are showing. I know many others are doing the same and to that end I post the following quote from Jamie Dimon that I found on Yahoo Finance:
“We’ve actually been effectively stockpiling more and more cash, waiting for opportunities to invest at higher rates,” Dimon said during a virtual conference held by Morgan Stanley. “So our balance sheet is positioned (to) benefit from rising rates.”
Yahoo reports the bank is holding about 500 billion in cash. Uhmm… that’s pretty close to what some of you guys are holding, right?
IMO, the Fed’s stimulus programs have led to a brief period of “transitory demand” commonly referred to as a “sugar high.” All big consumer purchases have been accelerated (primarily out of FOMO), but there’s a limited pool of buyers even with low rates.
Fed can’t win – take away stimulus and market corrects immediately. Continue with stimulus and you’ll have more and more inflation from the ever increasing money supply.
Tim—If the announcement is only, as you say, a ‘consideration’ of a taper, I think it will still immediately raise rates. I don’t think we will see any ‘consideration’ wording from the Fed. When the Fed decides to taper, I suspect it will come out of the blue.
Guess we will have to see Randy.