This Could Be A Buying Opportunity For Equities In The Intermediate Run:
Ben Bernanke and the FOMC kept interest rates the same and won’t be changing the current asset purchase program also known as QE infinity. Bernanke was clear that the ‘downside’ risks were less great than a few months ago but if economic conditions allowed, tapering could begin by the end of the year and possibly end by mid-2014.
The USD dollar, Aussie moved sharply against the Euro and the Yen with the S&P 500 losing ground as the Chairman held his press conference. Here’s the key part of the FOMC statement that shook markets even with unemployment at 7.6 percent and the Fed looking for 6 percent before tapering.
“The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.”
We agree with the view that the overall liquidity won’t change much in the intermediate run and the U.S. deficit should shrink. This would be good for equities and we would be reticent to jump into fixed income without more clarity on equity resistance levels in the short run. Downside follow-through to today’s losses (see our latest technical analysis chart here) would give us more reasons to hold off on adding to equity positions and we remain neutral on the S&P 500 as we look for new entry points.