Determined to Taper

The release of the July Federal Open Market Committee meeting minutes today and the Jackson Hole Economic Policy Symposium starting tomorrow are likely to dominate near-term activity in financial markets. Despite mixed economic data, it appears increasingly likely that some form of tapering will be announced at the FOMC’s September meeting.

August 21, 2013   |    By Scott Minerd

Global CIO Commentary by Scott Minerd

Market participants remain more focused on the possibility of a reduction in the Fed’s asset purchases than on economic data. Recent comments by Federal Reserve presidents, including the particularly dovish Charles Evans of the Chicago Fed, suggest the U.S. Federal Reserve is likely to announce a tapering of quantitative easing after the Federal Open Market Committee’s September 17-18 meeting. Wednesday’s release of the July FOMC meeting minutes and the Fed’s Jackson Hole Economic Policy Symposium, which begins on Thursday, will provide investors clues about the central bank’s upcoming moves. Importantly, there is a growing consensus that some form of tapering is on the way. Recent economic data is decidedly mixed, and not enough to justify rapid tapering in our opinion. However, since June the Fed has made the markets take their medicine and we see a strengthening in commitment by the Fed to hold to its guidance on the path of the program. Now the internal debate is likely no longer “when” but “how much?” The size of the proposed monthly decrease was originally thought to be $20 billion, but economic headwinds, particularly from the housing sector, make us think that the Fed may settle on a monthly reduction of around half that amount (evenly split between Treasuries and mortgage securities). Regardless of the amount of tapering and its composition, the bottom line for investors is that financial markets will probably be dominated in the coming month by a great deal more of tapering-related noise. This would be a negative for risk asset prices, and is likely to continue to drown out a number of other fundamental economic and policy-related issues including the full impact of the sequester and Washington’s looming budget and debt ceiling debates.

Rising Uncertainty for September

Historically, September is the worst month for U.S. stock market performance. Since 1929, the S&P Composite Index has averaged -1.1 percent for September, making it one of only three months with negative average returns over that time. The worst performing single month over this time period was September 1931, when the S&P composite fell 30 percent. There are several macroeconomic uncertainties facing the United States and the global economy as we head into September. The potential tapering of the U.S. Federal Reserve’s asset purchase program, the budget debate in Washington, and the German election could all increase volatility in global financial markets.



Source: Bloomberg, Guggenheim Investments. Data as of 12/31/2012. *Note: Data reflects average monthly price returns.

Economic Data Releases

U.S. Housing Data Solid Despite Higher Mortgage Rates

Euro Zone Trade Surplus Widens

Important Notices and Disclosures

This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.


October 14, 2016

High-Yield and Bank Loan Outlook – October 2016

The recent rise in prices and tightening of spreads suggest a time of caution for leveraged credit.

August 24, 2016

A New Policy Orthodoxy Is Emerging

Central bank policies implemented in the near-term may seem extreme today, but they will likely soon become policy orthodoxy.

August 17, 2016

Fixed-Income Outlook: Finding Relative Value with One Eye on Global Central Banks

Our third quarter 2016 report, details our current fixed-income strategy, economic outlook and where we see relative value.



Long-Term Macroeconomic Outlook

Scott Minerd, Global Chief Investment Officer, sheds light on U.S. economic strength, headwinds for the EU, and which emerging markets look attractive for long-term investors.


Strategies for a Low-Yield Environment

Scott Minerd, Global Chief Investment Officer, and Anne Walsh, Assistant Chief Investment Officer, Fixed Income, share insights on investing in unprecedented market conditions.

© 2016 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.