For one, the historical evidence connecting Fed tapering to\nmarket downturns is not very strong. Fed tapering first became a thing back in\nsummer of 2013, when then-Fed Chairman Ben Bernanke signaled gradual reductions\nin QE bond purchases. True, the stock market endured some short-term selling\npressure in the midst of the tightening, but it did not last very long. From\nthe time Ben Bernanke announced QE would be reduced (summer 2013) to the actual\nend of QE (fall 2014), the S&P 500 went up over +20%. <\/p>\n\n\n\n
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Not Sure What to Make of This Market? Download Our Stock Market Outlook Report!<\/a><\/strong><\/p>\n\n\n\n Instead\nof letting fearful headlines, like those that say Fed \u2018tapering\u2019 could spell\ndoom for the economic expansion, cause you to make knee-jerk responses, I\nrecommend making decisions based on data and fundamentals. To help you do this,\nI am offering all readers our just-released Stock Market Outlook report. This\nreport contains some of our key forecasts to consider such as: <\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 __________________________________________________________________________<\/p>\n\n\n\n The Fed did not end the tightening cycle then, however. Many\nreaders may remember that the Fed started raising interest rates in December 2015,\npushing the fed funds rate from 0.5% in December 2015 up to 2.5% in December\n2018.2<\/sup> I am not saying there was no market volatility in the wake of\nthe monetary tightening \u2013 there was. But for long-term investors, short-term\nmarket volatility should not be much of a factor. Market returns matter over\nyears and decades, not weeks and months. <\/p>\n\n\n\n As you can see from the two charts below, Fed tightening caused\na few blips and pullbacks during the last bull market, but QE tapers and rate\nhikes were not powerful enough to prevent the market from pushing higher over\ntime. <\/p>\n\n\n\n The S&P 500 Over\nthe Last Decade<\/strong><\/p>\n\n\n\n The\nFed Raised Interest Rates Starting in 2015 \u2013 Stocks Still Moved Higher<\/strong><\/p>\n\n\n\n To take a bit of a contrarian view, I would welcome a Fed\nannouncement to taper and eventually end bond purchases. In my view, Fed intervention\nkeeps downward pressure on long-dated U.S. Treasury bond yields, which squeezes\nbank profits and removes incentives for more bank lending \u2013 not great for the\neconomy. In my view, the Fed should be taking steps to try and steepen the\nyield curve \u2013 not flatten it. I think ending QE would be a step in the right\ndirection, and it gives investors another reason not to fear the Fed taper. <\/p>\n\n\n\n A final reason not to fear the Fed\ntaper: corporate earnings and economic\ngrowth matter more than the Fed, in my view<\/em>. All too often, investors can\nget caught up in financial media narratives \u2013 like inflation and Fed tightening\n\u2013 and forget about the central role that earnings and growth play in equity\nmarket performance. I think we are in the early stages of a strong run-in\ncorporate earnings and economic growth, as restrictions approach being lifted\nfully, nationwide. The economy is ready to charge ahead, in my view, which\ncarries more weight than Fed minutes. <\/p>\n\n\n\n Bottom\nLine for Investors<\/strong><\/p>\n\n\n\n Fed tapering and tightening in the\nprevious cycle did not prevent the S&P 500\u2019s bull market from persisting,\nand I doubt it will this time around, either. As somewhat of an anecdote, the\nBank of Canada and the Bank of England recently pared back bond purchases by\n25%, and neither equity market has felt much of a negative impact. In fact,\nthey\u2019ve both recently hit all-time highs. <\/p>\n\n\n\n At some point in the not-too-distant\nfuture, the Fed will need to rein in some of its monetary accommodation, but\ninvestors should not take it as an automatic signal of bearish times ahead.\nShort-term volatility is not the same thing as a longer-term downtrend. <\/p>\n\n\n\n If you\nhaven\u2019t already, now is the time to consider focusing on your asset allocation\nand portfolio diversity. Even with so much uncertainty, don\u2019t time the market!\nFind the right strategy that tailors best to your long-term financial goals and\nneeds. We recommend that investors focus on key data points and economic\nindicators when making financial decisions. <\/p>\n\n\n\n
IT\u2019S FREE.\u00a0Download <\/a><\/strong>the Just-Released May & June 2021 Stock Market Outlook<\/strong><\/a>1<\/sup><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/6_pic1-1024x395.png\")
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