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Tough Taper Talk


The stock market was roaring to the upside as we headed into the FOMC news, with the indices up over a percent. That despite FedEx getting hammered because higher costs are wreaking havoc with its P&L and forcing it to reduce prospective estimates. Interestingly enough, Adobe was unsuccessful at beat-the-number last night, quite possibly because the market cap is just too big to be supported by its lack of growth.

They Went Down With the Shipping That would be an interesting development if it is the case, given so many other companies are in the same boat. Having said that, those two were deemed to be company-specific while the party was underway.

As for the FOMC, they said nothing other than the fact that they'll probably taper in November, which will do absolutely zero to address the burgeoning inflation problems. The actual verbiage was, "moderation in the pace of asset purchases may soon be warranted," which obviously means, "We will taper if we like the data, if not we won't."

Naturally, the market immediately added to its gains, but then the rally was undermined on a headline from Powell's press conference which said the Fed might end the taper in mid-2022. That implied threat of faster monthly tapering caused stocks to have second thoughts, as they gave up the post-Fed rally, but still hung onto gains of about 1%.

Away from stocks, pre-Fed, fixed income was lower, the dollar was a touch lower, and the metals were a little higher, led by silver, which gained 1.5% compared to a few-dollar lift for gold. Post Powell's tapering chatter, trading was quite choppy, with decent-sized swings in both directions. By day's end, fixed income was weaker at the front end and firmer on the long end, green paper was higher while the metals were mixed, with silver gaining 1% as gold fell 0.5%. The miners were fairly strong initially, then surged in both directions before finishing flattish.

Playing With Fire Even though markets, other than the stock market, took Powell's tapering talk a little more seriously (not that they should have), it was only gold which really seemed to care. That is most likely due to what appears to be an active short trying to muscle the market (although this is guesswork). If that is the case, how long they plan to wage this battle is unknowable, but if (when?) the market starts to go against them, there could be quite a scramble to the upside.

Positions in stocks mentioned: none.