The Fed gave the markets a surprise this week and left some people scratching their heads. If you had not seen the news, it was widely anticipated that the Fed would start its tapering process, which in essence would have meant a scaling back of its program to buy back Treasuries which serves to act as a stimulus to the economy. The estimate was that they would have reduced somewhere between $5 billion to $20 billion per month. Well, at least for now that did not happen.
The overall rationale that the Fed gave for not starting, “The Taper”, was that they continue to see some signs that the economy is still struggling and that no change to policy was yet warranted. Those concerns also included inflation still being too low, unemployment too high, and an upcoming debt ceiling debate. Some had felt that with Bernanke’s upcoming exit combined with his having started the stimulus, he would like to leave with at least having started the process to exit this program. For now, that turned out not to be the case. He does have two more meetings before turning over the reins to a new Fed Chair.
So what did that mean? Well it meant a very good day for the markets. Stocks rallied with the belief that the “punchbowl” was not being taken away yet. Bonds rallied as interest rates dropped since it became less imminent that rates would be going up as soon as some had thought. Gold rallied as a strong stock market with low interest rates could also be inflationary.
While the market continues to reach all-time highs, we continue to believe that asset allocation and making sure that the risk level that each investor takes is in line with the individual goals and needs. One should anticipate some volatility ahead with the upcoming debate on ObamaCare, which is scheduled for an October 1 rollout, as well as another round of Debt Ceiling conversations. While we expect that there may be some periods of volatility during this time frame, we would anticipate that to be a good possible buying opportunity for stocks. We continue to believe in bonds for the appropriate percentage of portfolios, however with a keen eye on keeping the duration of those bonds short term. One may also look to invest in opportunities for fixed income that may participate in a rising rate environment. For now the markets are enjoying this latest Fed decision, but as is often the case, this may just be a slight delay in what will eventually be coming at the next Fed meeting in December or Mr. Bernanke’s last Fed meeting in January.
To discuss how this subject or other financial subjects may relate to your own financial circumstance, please contact me at the contact information below::
Christopher N. Congema, CFP®
President, Investment Advisor
Core-X Wealth Management, LLC
900 Walt Whitman Road, Suite 208
Melville, NY 11747
This communication is from Core-X Wealth Management, LLC, a New York State Registered Investment Advisory firm. The information in this blog is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.