Beware of Taper Tantrums

December 11, 2013

Last week the stock market had a 4-day losing streak in the S&P 500. (A cumulative 4-day decline of 2.6% as of the writing of this article on Friday Dec. 13th) Much of the reasoning being provided for this mini-pullback has been directed at the inevitable “tapering” that the Federal Reserve must begin at some point. This tapering refers to reducing the $85 billion of bond buybacks per month that has been occurring for some time now as a part of the Fed’s ongoing Quantitative Easing (QE) policies.

 

In our mid-year market review, we likened these QE policies to a 10-year old riding a bicycle with training wheels. It made the kid feel safe for a while and may have prevented a few bumps and bruises but there comes a time when you have to take off the training wheels. It is important to realize that the reason for the training wheels coming off (or for tapering to begin) is that the child can actually ride pretty well by himself now. Tapering must occur at some point and the reasoning will be because the economy is in a much better position to move forward without the assistance of the Federal Reserve in its current form.

 

But we want to warn you in advance that not everyone will be in favor of the training wheels coming off. They will likely reveal these “taper tantrums” through some level of selling pressure in the market. Keep in mind that the average intra-year decline in the S&P 500 since 1980 is 14.7%.1 Volatility is a constant factor in investing and we view the ultimate resolution to recent Fed policies as a very good thing for our economy and the market. It will be much easier to quantify the values of asset prices once the current level of Government influence has declined and any tantrums thrown along the way may provide us great opportunities to pick up some discounted assets.

 

As we approach Christmas, we encourage you to focus on this wonderful Season, friends and family, and know that we will be watching the markets and ready to take advantage of any opportunities that these “taper tantrums” may provide.

 

BOTTOM LINE:  “Taper talk” may provide us a much anticipated opportunity to pick up some discounted assets. We feel that market pullbacks are normal, necessary, and not anything to be alarmed about as these opportunities arise.

 

REQUIRED DISCLOSURES:  Past performance is no guarantee of future results. Investments in securities are not FDIC insured, and may lose value. Please consult a current prospectus prior to investing in mutual fund shares. All information contained herein gathered from sources deemed to be reliable. For more complete information, please see your official statement.  Adams Financial Partners, Inc. and Cetera Advisor Networks, LLC are not affiliated. The views are those of Lyn Adams and should not be construed as investment advice. All economic and performance data is historical and not indicative of future results. Investors cannot invest directly in an index.

 

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