Record Highs after “Taper-Talk” – Monday Morning Market Memo – August 30, 2021

Record Highs after “Taper-Talk” – Monday Morning Market Memo – August 30, 2021

Good morning,

The major stock market averages booked nice gains last week, even after Federal Reserve Chair Jerome Powell put the financial markets on notice that tapering is coming relatively soon.  Tapering refers to the Fed scaling back on some of its monetary stimulus, by reducing its $120 billion of monthly bond purchases.

In the Jackson Hole Economic Symposium speech last Friday, Powell stated it could be appropriate to start reducing the pace of asset purchases “this year.”  Based on comments from other Fed officials, the market is expecting the tapering announcement could come at the Fed’s September 21-22 meeting.

Chair Powell also stressed that tapering should be divorced from interest rate hikes, as tapering may not seamlessly lead to rate hikes.  Powell stated “the coming reduction in asset purchases (tapering) will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.”  In other words, just because the Fed is getting ready to taper, does not mean it is ready to raise interest rates.

In addition to the comments on tapering and rates, Powell also stood by his belief that the recent spike in inflation would turn out to be transitory.  After all the talking was done, the stock market decided it liked what it heard – closing up on Friday, with the Dow rising over 240 points and the S&P up about a percent – and with the indices also up for the week as a whole.

The Dow Jones Industrial Average posted a weekly gain of 1% , ending at 35,455.80 – the Standard & Poor’s 500 Index finished the week at a record high, adding 1.5% to 4,509.37 – and the NASDAQ Composite, which also ended the week at a new record high, jumped 2.8% to 15,129.50.

Bottom line, based on the market reaction so far at least, the Fed seems to have nicely threaded the needle between tapering (reducing stimulus) while also maintaining an overall dovish (stimulative) tone!

All the best – Southport Station Financial Management, LLC