The Fed and the U.S. Stock Market

by Laura Ehrenberg-Chesler on June 18, 2013

in Employment,equity market,Fed policy,inflation/deflation

The Federal Reserve meets today and tomorrow, and investors are holding their breath to see whether they will signal an end to their bond buying program.  The thinking goes that if they taper their bond buying program, interest rates will go up, and that will be bad for stock prices.

We see it somewhat differently.  We have posted several blogs of late articulating some of the fundamental positives which are in place and which support current stock prices, and may support further upside over the next six months.

1) Inflation remains subdued 2) The United States is still considered a safe haven for investors 3)The economy is growing, albeit more slowly than many would like to see 4) The housing market is still recovering  5) The employment landscape is slowly improving 6) Rates remain relatively low

There are still some events that could cause near term downside volatility.  One would be the unwinding of the Japanese carry trade.  And certainly if rates rise quickly, that would undermine equity prices, as well as the housing market.  But, it could be that a gradual rise in interest rates may be signalling an improving economy, and that is good for stocks.

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