As autumn arrives, the Federal Reserve will end its stimulus program with a final $15 billion purchase of US treasury and mortgage-backed securities. From there, monetary policy is expected to normalize gradually with a rise in short-term interest rates forecast for the middle of 2015. Following the Great Recession, US economic expansion remains slow characterized by weak job growth. Slack in the labor market is one of the many data points used by the Fed to determine policy change. For now, policy remains accommodative.
What with higher interest rates off the table until next year, the stock market continues to set record highs. The biggest initial public offering of stock in history with Chinese e-commerce giant Alibaba added to the excitement. A further advance would not come as a surprise in the short run, but stocks are at least fairly valued at this point in the market cycle.
Higher yields in the bond market will cause a drop in prices similar to what happened in 2013 when the Federal Reserve first announced its plans to remove stimulus. Selling bonds in this setting is not typically recommended just as it is often unwise to sell stocks in a price decline. In fact, what with the US nearly at war again in the Middle East, now may prove to be a good time for the safety of an appropriate allocation to bonds.
US and foreign military strikes on the Islamic State in Syria and Iraq may continue for some time, according to President Obama. In the face of danger, the deep divide in Congress seems to have softened a little and lawmakers have voted to keep the government open. Unfortunately, with the urgency of the foreign policy agenda, domestic issues such as comprehensive tax reform and immigration have taken a back seat.
Through it all, ASG will keep an eye on the political and economic headline news events that move the markets. Notable dates on the calendar are as follows:
|September 30||Consumer confidence|
|October 3||Unemployment rate|
|October 31||Happy Halloween!|
|November 4||Mid-term elections / Election Day|