-- Daily Gains Letter (www.DailyGainsLetter.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is weighing in on news that the Federal Reserve has ended its unprecedented quantitative easing program. Daily Gains Letter is also commenting on how this will impact investors and the broader stock market.
The Federal Reserve announced on October 29 that it officially ended its quantitative easing bond-buying program, citing expanding economic activity, improved market conditions, solid job gains, and a lower unemployment rate as evidence that the labor market is nearly balanced. (Source: “Press Release,” Board of Governors of the Federal Reserve System web site, October 29, 2014; www.federalreserve.gov/newsevents/press/monetary/20141029a.htm.)
“With this announcement, the Federal Reserve has ended its trillion-dollar monetary experiment and closed the tap of easy money that has flowed into the pockets of investors since late 2008,” says financial analyst George Leong. “Remember, it was the Federal Reserve’s relaxed easy monetary policy that helped to drive the S&P 500 up nearly 200% since 2009—and now it’s over.”
Leong observes that the stock market reacted with stocks heading lower, as there was a slight sliver of hope the Federal Reserve would decide to hold back on eliminating the third round of quantitative easing (QE3). Investors will now have to deal with bond yields that could begin to move higher on the Federal Reserve’s move, says the analyst.
The Federal Reserve didn’t give a time frame for when interest rates will begin to move higher from their near-zero levels, but the consensus is calling for the rate increase to begin sometime in mid- to late 2015. According to Leong, higher rates from the Federal Reserve will drive up yields and carrying costs for both companies and personal debt. That increase will have an immediate impact on the more than $17.7 trillion in national debt and the government’s unmanageable carrying costs.
“The markets are at a crux. Stocks want to go higher, but need a fresh catalyst to do so. The advance reading of the third-quarter gross domestic product growth came in at a healthy annualized growth rate of 3.5%, which, while down from the booming 4.6% in the second quarter, is nonetheless indicative that the economy is expanding,” he adds. “At the end of the day, a strong economy, continued improvement in the jobs market, and a pickup in corporate revenue growth will be critical as we move forward.”
That said, Leong notes that there are serious headwinds the markets need to overcome. The eurozone, the world’s largest trading region, is facing serious economic challenges, and economic sanctions on Russia, the cornerstone of Eastern Europe, could help drive Europe into another period of stalling and a potential recession. Advance third-quarter GDP readings are encouraging, but any kind of setback in the coming quarters could send the markets downward, similar to what was experienced in October.
“With muted guidance from bellwether retail companies, investors may want to consider taking profits as the year-end tax season approaches. The gains made in 2014 have been muted, but don’t forget the strong gains from 2013,” Leong concludes. “Selling into strength and rallies makes a whole lot of sense at this time, given that the Federal Reserve will increase rates in 2015. The stock market rally was impressive, but investors have to wonder whether we will witness another downside adjustment in stocks.”
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Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com.
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