Adjusting to the Tapering Has Already Started

The stock market suffered its biggest loss yesterday in a month. That loss wasn’t much, but it says more about how calm things have been over the last month.

Target (TGT) released a very good earnings report. The store earned $3.64 per share versus an estimate of $3.49 per share. Target beat on revenue as well. Target raised guidance and approved a $15 billion buyback.

At CNBC, Jeff Cox notes that the stock market is already adjusting itself in preparation of the Federal Reserve tightening.

For one, he noted that market-based inflation measures pulled back. He also noted the “sideways” movement in commodity prices and the flattening of the yield curve. Within stocks, small-cap, cyclical, international and emerging market equities all pulled back.

Perhaps most importantly, money stock measures, which reacted sharply to when the Fed ramped up the bond buying program in March 2020 as the pandemic hit, have fallen quickly this year – from a 1.4% monthly gain in January to essentially flat in June, even as the Fed continued buying bonds.

Essentially, the lack of growth in the monetary base, or M2, is showing the diminishing impact of the Fed’s bond purchases, Paulsen said.

He also noted that markets have digested the moves fairly well and might not even react once the official tapering starts happening.

I think that could be right.

Posted by on August 18th, 2021 at 1:45 pm


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