What’s Priced In?
This past week started off with big news out of Washington DC, as Larry Summers bowed out of the race to become the next Fed chair. Larry Summers has been quite vocal about his concerns with Quantitative Easing (QE) and the market views him as a hawk. A hawk tends to disagree with policies that keep interest rates artificially low because they fear that inflation could run wild in the future. Part of the weakness experienced since July can be attributed to the market “pricing in” the chances that Mr. Summers would get the job as the Fed chair. The result was the market surged on Monday because the continued policies of QE will more than likely continue with Janet Yellen as the new favorite for the Fed Chair.
Last Wednesday the S&P 500 closed at an all-time high due to the results of the most recent Fed meeting. This was due to the fact that the Fed announced it will not begin tapering this month. The Fed will continue to purchase $85 billion in bonds each month for the foreseeable future. The market had “priced in” some level of tapering from short-term traders selling over the past several weeks in anticipation of this Fed meeting. As soon as the traders learned that QE was here to stay, they quickly jumped back in the market expecting QE to continue to push the equity market higher.
Read this week’s Thought of the Week to learn more about the implications of this news for long and short-term investors.
Click Here for the Weekly Thought As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.