This week the FOMC is meeting to discuss what to do with interest rates and bond purchases. Since the beginning of the crisis the Fed has stepped in and supported the stock and bond market with what’s called quantitative easing by buying bonds on the market. The Federal Reserve is currently buying $120 billion worth of financial securities every month. What’s big about this meeting is that the Fed has indicated that they are going to Taper. Tapering means reduce the amount of bond buying. The thing is that we really don’t know how much they are going to reduce and at what rate or time-period. This meeting won’t involve the language of raising rates but rather reducing the amount of stimulus the Fed is putting into the market because they may possibly feel as though the economy is standing on its own two feet. Additionally, the Fed will be watching the jobs numbers reporting at the end of the week. These are two large data points to keep an eye on.
After a pullback in September and volatile start to the month the market finished strong in the month of October. The great news for the market is that, historically, late October has marked the season low before stocks typically rally into year end. In fact, 4th quarter, as a whole, has historically been one of the stronger quarters year-over-year. No guarantees of course, but on average the S&P 500 has risen 4% and finished higher nearly 80% of the time in the last quarter of the year. Once again, no guarantees, but November historically has been one of the strongest months of the year since 1950 and over the last decade. We tend to lean towards thinking that seasonality potentially has turned from a headwind to a tailwind for equites.
Taxes & Policy
In the everchanging world of tax and policy, Washington brought somewhat last-minute ideas to the table last week which includes a 15% minimum tax on corporate income. Also, the discussion of the unrealized gains tax policy that has been a hot topic. As of Thursday, Senator Manchin seems to have shot down the unrealized gains tax policy. However, we don’t want people to be alarmed if it does pass because there are no guarantees. For the record, if that were to pass it would apply to individuals with over $1 billion in assets or $100 million in income. For the most part, this would affect the super wealthy but would certainly have a lot of push back.
We discussed the volatility of the overall markets the last couple of months and saw a very strong close on Friday with the S&P 500 sitting at 4,605. This pushes our new resistance level to 4,635 with a new support level of 4,575. Also, the S&P 500 100-day moving average finally pushed up over 4,400 currently sitting at 4,404. It will be crucial to see from a technical level whether this momentum can continue into 2022 as well as if any fundamental data points can cause any turbulence along the way.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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