09.01.2014: From the Fed meeting minutes 9 Jan 2014: The Fed in a very cautious tapering mode!
The Fed has initiated the QE3 tapering, but intends to proceed at a very cautious pace to avoid any unintended tightening of financial conditions i.e. surges in long-term yields. That message bodes well for the stock market!
24.12.2013: A little tapering!
The FOMC recently decided to cut its bond purchases by $10bn to $75bn per month. Assuming the FOMC continue to slow their buying at that pace, they won’t finish the QE tapering until very late into 2014.
However, we believe that the incoming chair, Mrs Janet Yellen, being a pure technocrat is unlikely to stop the bond purchase program. Hence the market is now moving its attention to the interest rate question. Current thinking is that the Fed won’t raise interest rates until H1 2016.
With this in mind, the equity market is likely to have some good days ahead, well into 2015.