Posted by: coastcontact | June 24, 2013

“Taper” and “Sequester” both Wall of Strength?

“Taper” may be easier to define (and spell) than “sequester” but both caused the same headache for financial markets.

“Taper” is the latest buzzword that describes the Federal Reserve’s pledge to gradually drawdown the ultra-loose borrowing conditions fueled by its bond buying (the Fed’s demand drives up bond prices and drives down borrowing rates pinned to those bonds). “Sequester” you’ll remember was the S-word that emerged from federal budget-balancing attempts. It had investors bracing, however briefly, for an expensive and inconvenient government service disruption. Words can be potent once they’ve entered the investing vernacular. We get it. It’s noise that can be hard to tune out. And who wants to turn a deaf ear when our portfolios are at stake? Frankly, the negative use of the word “tapering” has muddled the fact that the Fed is simply readying for actions that most investors have expected for some time—which ironically, are tailored responses to an improving economy.

Stock Market Jitters in 2013

The formidable line here is an uptrend. The S&P 500 closed at an all-time high 1,669.16 on May 21, 2013, up over 130% from its financial-crisis low of 676.53 reached March 9, 2009, but it wasn’t a straight path to that high. From election uncertainty to fiscal-cliff vertigo to rumblings from Europe, and now, intense focus on the Fed–we’ve been here before. Data source: TD Ameritrade/Standard & Poors.

Of course there are no guarantees.  Today panic seems to be in the air.

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Responses

  1. “Taper” may be easier to define (and spell) than “sequester” but both caused the same headache for financial markets.


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