Taper tantrum begins

https://www.wsj.com/articles/global-stock-markets-dow-update…

**Interest-Rate Worries Batter Stock Market**
**Nasdaq sinks more than 3%, bond yields rise amid Fed minutes release**

**The minutes of the Federal Reserve’s December policy meeting, released Wednesday afternoon, indicated that officials might lift short-term interest rates as soon as March. U.S. equities fell broadly after the minutes were released. Bond yields rose to their highest levels since early April. ...** [end quote]

Buy on the rumor, sell on the news?

Sell on the report, buy when they actually execute the policy? I don’t think so. Once the Fed actually starts tapering their bond purchases and raises interest rates, I think the market will react strongly, even though they have had plenty of warning.

Wendy

3 Likes

It will be interesting to see whether interest rate hikes will actually dampen inflation. As noted here, market pricing power of oligopolies may be the primary factor driving an increase in prices. And the last time they tried to taper stimulus programs they gave up after a few months. You know what I think, a new paradigm brought on by peaking natural resources and exacerbated by some poor decision making. There is no evidence that tightening the bond markets or discontinuing stimulus is feasible.

1 Like

Once the Fed actually starts tapering their bond purchases and raises interest rates, I think the market will react strongly, even though they have had plenty of warning.

I try to use history as my benchmark for such:

https://www.cnbc.com/2021/11/07/why-the-taper-will-be-good-f…

After Bernanke’s taper comments in May 2013, stocks dove by 5.8% in the next month — which in the technical definition of a market pullback, between 5% to 10%, is on the smaller side of the selling — and for the rest of that year, the market was up 17.5%.

In the 10-month tapering period, from mid-December 2013 to the end of October 2014, the S&P 500 rose 11.5%, according to CFRA Research.

In 60 instances since World War II when stocks experienced a pullback, the market continued to rise in the next calendar month and did so by an average of 3.3% — and was higher 92% of time.


I have no idea what the market will do this year but for any investor that has most of their money in stocks, any taper tantrum should not be a cause for intermediate to long-term concern, based on historical performance - at least for 92% of time.

15 Likes

If “taper tantrums” usually happen, you might want to sell a bit of stock beforehand and then buy into the tantrum. Catch is, the tantrum probably starts about the same time you can be confident that the trigger is probably going to happen, so there isn’t a lot of “beforehand”.

(Timing the market is hard in general, and maybe it’s USUALLY impossible, but I don’t believe it’s ALWAYS impossible.)

(Oh, and dollar-cost averaging - when you have the reasonable option of putting in all the money at one time - is trying to time the market while blindfolded. It doesn’t make sense.)

Cutting interest rates does not cut off any inflation among the $15/hour crowd.

But among the millionaire and billionaire crowd it cuts off the real inflation. And hard.

Said wrongly…not used to seeing rate hikes its been a while.

Rate hikes for the wealthy business people will cutoff inflation fast.