November 8, 2021

Fed's taper set to end in 8 months

 The US stock indices - the S&P 500, the Dow Jones, and the NASDAQ - continue to extend gains and reach new historic highs every day. It has been more than 24 hours since the end of the FOMC meeting. It is now possible to conclude that markets have digested its outcome. Notably, the meeting provoked almost no reaction in the stock market. Moreover, the greenback showed modest growth. It seems that markets have long been ready for QE tapering to begin in 2021 and have already priced it in. It actually can be true. The fact is that talks over the possible curtailment of the QE program began in the summer. All that time markets were expecting the Fed's announcement. As a reminder, stock indices were bullish in recent months and the greenback strived to strengthen against its counterparts. Therefore, when the regulator finally announced a slowdown in monthly asset purchases, it changed nothing.

In the coming months, the US stock indices are expected to extend gains owing to sufficient cash money inflows into the American economy. In November, the Fed will pump $105 billion into the economy and $90 billion in December. These amounts are slightly less than the previous $120 billion of monthly support. This means that there will still be enough money so that some of it ends up in the stock market. Consequently, many stocks will continue to rise in value. Another important factor is inflation. It still remains at high levels in the US. Therefore many investors seek ways to protect their capital. There are many hedging options here, ranging from cryptocurrencies to buying real estate somewhere in Dubai. The US stock market is one of these options. It has been growing steadily over the past year and a half, allowing investors to increase profit and protect their capital. Therefore, as long as inflation is rising, the US stocks are expected to increase as well. Only when inflation starts to slow down, the bullish trend in the stock market is likely to end. This is the reason why the Fed started tapering in the first place. All in all, it could happen as earlier as March next year. In the first months of tapering, a change in the dynamics of the stock market will hardly be noticed.