In the topsy-turvy game of tapering expectations, it was just last Friday, after a robust payrolls report, that market participants were re-evaluating the view that the Fed would hold off from reducing stimulus until March 2014. Talk of a December taper rose from the ashes, the dollar strengthened and the stock market wavered.
A week on, things have moved the other direction once again and not many people are talking about a December taper anymore. This is largely thanks to Janet Yellen’s dovish testimony yesterday, but the tepid nature of macroeconomic data has also played a part.
While the level of improvement in the overall economy remains a little uncertain, earnings growth has been solid, and with accommodative policy here to stay for a good while, it is an attractive environment for the stock market, which is why we have seen indices breaking through record levels. With under an hour to the close on Wall Street, the Dow was on track to close at a new record high for the third trading session in a row, up 0.46% at 15,948. The S&P 500 is in a similar boat, up 0.34% at 1796.6.
Next week we have the minutes of the last FOMC meeting to look forward to. This may give us a little insight into how the Fed viewed the impact of the government shutdown, but I doubt it will reveal much by way of the future intentions for tapering.