Yesterday, the stock market rallied a little. The explanation, according to a Reuters story, is that there are signs that the Federal Reserve will begin tapering in September.
As you will recall, for six consecutive days, the stock market tanked. The explanation for the tanking was this: the expectation was that the Federal Reserve will begin tapering in September. This expectation was based on a careful reading of the minutes, which said the FED will not change its present policy. CNBC reported:
Minutes from the Federal Reserve’s latest policy meeting showed almost all the policymakers on the central bank’s Federal Open Market Committee agreed that a change to the stimulus was not yet appropriate, though some hesitation remained.
It is always good to read the analyses by reporters, who have their fingers on the pulse of the financial community.
For six days, fear about tapering drove down the stock market. For one day, optimism about tapering drove the stock market up. So, the fear of tapering is bad for the market, and optimism regarding the imminent tapering is good for the stock market.
It is important to follow the reports of our financial media. If you don’t follow the reports of the financial media, you might become confused. You might think that a consistent policy, which the Federal Reserve has repeatedly announced every six weeks since last December, which says that there will be no tapering until at least the middle of 2014, is to be relied on. But it is not to be relied on. No, indeed. Financial experts tell us that the Federal Reserve in fact, is planning to do the opposite of what it has insisted that it will do.
Why? Because it is committed to transparency.
You wouldn’t want the Federal Reserve to lose its transparency, would you? No, of course not.
What is important is this: the Federal Reserve will maintain its credibility, and it will do so by doing exactly the opposite of what it has insisted that it is going to do.
“The Fed tapering theme continues. Yesterday’s Fed minutes reinforced expectations that the Fed will taper its quantitative easing program in September and today’s jobless claims didn’t really change that,” said Greg Moore, a currency strategist at TD Securities in Toronto.
The minutes released on Wednesday said that the FED will not taper. CNBC reported this. But at the end of the trading day on Thursday, the FED’s minutes said that the FED will taper in September. This is why the stock market fell for six consecutive days, and this is why it went up yesterday.
I will be fascinated to see why it will go up or down today. We will be told, retroactively, what caused this, after the market closes.