Wednesday morning, economists, analysts and I woke up with the anticipation of watching history in the making – the Fed has essentially never done said tapering before and all reports, research, media and talk were focused on the long anticipated wind-down (i.e. tapering) of the Fed’s $85 billion-a-month bond buying stimulus program.
Later Wednesday afternoon, at the Federal Open Market Committee (FOMC) post meeting news conference, Mr. Bernanke surprised markets by announcing no plans to curtail the FOMC’s bond buying program, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market". The market did exactly what it always does to the media – it reacted. Almost immediately, the S&P 500 rejoiced and rallied 16 points on the announcement and US Treasury yields moved 4-15 bps lower across the curve with the largest decline in yields in the 5-10 year part of the curve.
So what does this really mean?
The blend of increasingly positive economic data in the US, Europe and Japan in addition to the Fed’s continued $85 billion-a-month stimulus program is serving as a great mix for markets. Keeping rates low provides cheap financing for the private and public sectors, encouraging borrowing, investment and growth. As noted by RBC GAM Chief Economist Eric Lascelles yesterday, “the Fed’s decision to continue its bond purchases for what is likely a few more months is a good thing”.
But really, what does it mean for you?
A shock to the market 2 days after the five year anniversary of Lehman Brothers' epic fail is almost ironic, don’t you think? Even more ironic was President Obama marking the fifth anniversary of the bankruptcy on Sept 16th by touting the US economy’s strength saying his administration has laid a “new foundation” for a stronger economy…days before Bernanke said otherwise.
You can look at the stats any way that you want, but what you always have to be mindful of is your own personal goals – specifically related to your time horizon, appetite for risk and investment objectives. Keeping your eye on the end goal and working with a professional who is going to establish and implement a strategic financial plan for the future that keeps you focused regardless of the noise is incredibly powerful and valuable – especially during a week like this one.
Note that the latest magazine cover everyone is talking about is the latest edition of TIME featuring a smiling and “winning” Wall Street bull with the caption "five years after the crash, it could happen all over again". High profile magazine covers have a history of being wrong + selling plenty of copies - and that’s a case of too much bull, in my opinion.
Enjoy the weekend.
Investment & Wealth Advisor
Chaaban Wealth Management Group