The question investors are now asking is, ‘how quickly will the Fed start to taper bond purchases?’ Will they announce the taper timeframe in August at the Jackson Hole Symposium? Or will they wait until September? One market reaction that can be expected is for stocks to fall when bond tapering is announced. Why would that be? It is because a move towards higher interest rates will mean higher debt repayments and lower profitability for companies. However, any dips in the S&P500 could present good buying opportunities despite the high valuations of many US companies.
Over the last 10 years, the S&P500 has risen 80% of the time between October 01 and December 31 with an average return of +5.06%. The largest gain was in 2011 with a 16.18% gain. The largest loss was in 2018 where the S&P500 registered a -14.28% loss.
Major Trade Risks: Any very fast US economic recovery could result in more aggressive action by the Fed making conditions even harder for US companies.