How Will the Fed Tapering of Asset Purchases Impact the Market?

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – Yesterday, the Fed finally decided to start the tapering of its asset purchases. It was pretty anticlimactic as the Fed has been hinting at this for many months. Further, the economy is in a much better place than it was when these policies were initiated. Just look at the S&P 500 (SPY) at all-time highs, real estate prices at new highs in many places, consumption at new highs, and business investment at new, post-pandemic levels. In today’s commentary, I want to discuss the Fed’s decision and what this tells us about the current cycle. Read on below to find out more….

(Please enjoy this updated version of my weekly commentary published November 04, 2021 from the POWR Stocks Under $10 newsletter).

Over the last week, the market’s advance has continued with the S&P 500 up by nearly 2%. Even more impressive is the Russell 2000’s more than 4% gain.

This small-cap outperformance is not too surprising given that Congress seems to be getting closer to an agreement on a final infrastructure and reconciliation package that should come in around $3 trillion.

What was more surprising was the bullish reaction on Wall Street when the FOMC announced that it would begin tapering asset purchases. Currently, the Fed is buying $150 billion of securities every month – a mix of Treasuries and mortgage-backed securities (MBS).

Starting later this month, the Fed will be reducing these asset purchases by $15 billion. In essence, this is the “beginning of the end” of the extraordinary support that the Fed has provided the economy.

In a vacuum, this is marginally bearish for the market. Simply put, it means that short-term rates will be rising, and we are getting closer to the first rate hike. From June till now, we have seen the 2-Year Treasury yield rise from 0.15% to 0.45%.

However, the Federal Reserve is only making this move, because it’s confident that the economy has enough momentum to handle slightly higher rates. It will also have the benefit of tamping down on inflationary pressures.

Overall, I believe that “inflation concerns” may have peaked in Q3. This fits with the Fed starting its taper in addition to other signs that bottlenecks and supply chain issues in the economy are easing.

In a bigger picture sense, the Fed starting its taper, officially marks the end of the first phase of this bull market. This is the ‘easy money’ phase when good news is good because it means companies will earn more money but also bad news is good, because it means the Fed will provide more support or the same support for longer, boosting asset prices.

What To Do Next?

The POWR Stocks Under $10 portfolio launched last month and is off to a tremendous start.

What is the secret to its success?

The portfolio gets most of its fresh picks from the Top 10 Stocks Under $10 Strategy which has market beating +62.88% annual returns.

If you would like to see the current portfolio of low-priced stocks, then consider starting a 30 day trial by clicking the link below.

About POWR Under $10 newsletter & 30 Day Trial >>

All the Best!

Jaimini Desai
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter


SPY shares were trading at $470.14 per share on Friday morning, up $3.23 (+0.69%). Year-to-date, SPY has gained 26.98%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Jaimini Desai


Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
SPYGet RatingGet RatingGet Rating
.INXGet RatingGet RatingGet Rating
DIAGet RatingGet RatingGet Rating
IWMGet RatingGet RatingGet Rating
QQQGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


:  |  News, Ratings, and Charts

Should You Be Worried About $200 Oil?

One of the biggest challenges facing the economy is the rising price of oil. Already, it’s starting to eat into consumer spending and exacerbating other inflationary pressures. However, investors should prepare themselves for a world with much higher oil prices. In this article, we will explore some reasons that oil prices could surge even higher and strategies investors can use to profit in this scenario. Read on below to find out more…

:  |  News, Ratings, and Charts

3 Defensive Stocks to Consider Buying During the Market Downturn

The Fed’s aggressive interest rate increases to fight high inflation has raised concerns about a potential recession. During times of market turmoil, companies in defensive sectors will likely perform better than the broader market owing to inelastic demand for their products. Thus, we think it could be profitable now to bet on shares of defensive companies CVS Health (CVS), PepsiCo (PEP), and Albertsons (ACI). Read on.

:  |  News, Ratings, and Charts

Off Target?

There was reason for optimism earlier in the week as the S&P 500 (SPY) advanced nicely after skirting bear market territory. But then on Tuesday WalMart had shockingly poor earnings which was easily ignored. Unfortunately the next day Target reported even worse results and the investment world took notice with a 4% sell off. That rout extended through Friday as we briefly blew past the bear market dividing line at 3,855 to a low of 3,810. Then a late rally ensued ending the session back above bear territory at 3,901. Does WalMart and Target earnings truly change our outlook on the economy and what it means for the stock market? That is the key topic we need to explore this week in our POWR Value commentary. Read on below for more…

:  |  News, Ratings, and Charts

3 High-Quality Dividend Aristocrats to Buy in May

The stock market is experiencing heightened volatility and given the Fed’s aggressive monetary stance to tame inflation, stocks might tumble further in price before hitting a bottom. Hence, we think dividend aristocrats W.W. Grainger (GWW), Target Corp. (TGT), and Cintas Corp. (CTAS) could be quality additions to one’s portfolio now. Read on.

:  |  News, Ratings, and Charts

Off Target?

There was reason for optimism earlier in the week as the S&P 500 (SPY) advanced nicely after skirting bear market territory. But then on Tuesday WalMart had shockingly poor earnings which was easily ignored. Unfortunately the next day Target reported even worse results and the investment world took notice with a 4% sell off. That rout extended through Friday as we briefly blew past the bear market dividing line at 3,855 to a low of 3,810. Then a late rally ensued ending the session back above bear territory at 3,901. Does WalMart and Target earnings truly change our outlook on the economy and what it means for the stock market? That is the key topic we need to explore this week in our POWR Value commentary. Read on below for more…

Read More Stories

More SPDR S&P 500 ETF Trust (SPY) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All SPY News