Well, it looks like one of those frequent times where Wall Street and Main Street disconnect. When the Federal Reserve decided this week to skip any tapering, stocks went quickly and forcefully to the upside. While, at first blush, it does seem to make sense, it is hard to hide the real meaning behind the (non) move. Before the announcement there was a pervasive feeling that the Fed was going to so something, even if it was just a tiny bit, to show that they were serious. So, while stocks went into full party mode, there was a sense of worry, if not outright doom among many. After all, how bad is the economy if the Fed couldn’t even bring itself to a symbolic taper-lite maneuver? And don’t forget this whole “taper” talk started with the Fed in the first place. The tapering scenario was supposed to be the tiny steps taken to assure the markets. They have dropped talk of ending QE (quantitative easing) altogether. Even Peter Schiff, rather famous talking head on CNBC and dyed in the wool precious metals bull, expected a slight move from the Fed, not on the merits, but for face saving. But, it is probably unsurprising that he doesn’t think this equity euphoria will last:
This could ultimately lead to an even bigger sell off than what we would have seen today if the Fed had come through with a taper announcement.
Now, it could easily be argued that Peter Schiff is not the best messenger for this, as he hasn’t exactly been bullish on the U.S. economy for a long time. Still, how else is one going to take this news? The Fed has clearly and consistently been pointing the markets to an exit strategy for their QE and bond buying. Now that it has been delayed beyond the time period that they first pointed to, what else can be concluded? They don’t like where the economy is at the moment. Of course, that could change fairly rapidly, but it’s hard not to notice that the Fed thought it would already have happened. Now that is hasn’t, what’s the next move?
The dollar wasted no time in plunging on the news as those traders were just as surprised by the news as the equity folks:
On Wednesday, the currency gauge dropped to 80.081, the lowest level in seven months, after the Fed decided to maintain its $85-billion-a-month bond purchases. Most analysts expected the bank to announce a reduction of about $10 billion a month.
It did bounce back a bit on Thursday, but is still showing a 1.4% sell off going into today. There is other news as well, including Apple’s new iPhone start date and a potentially big election in Germany on Sunday. But this past week, the Fed was nearly all that mattered and that is likely to permeate the mood for a while. Economic numbers will be getting even more scrutiny than usual in the coming weeks. That’s all for today–enjoy the weekend!