The stock market sold off into the end of the day for no reason on Monday and Tuesday. On Wednesday, it seems to be holding up, even after September’s Federal Reserve minutes gave it a reason to drop if it were so inclined.
The minutes were expected to be a nonevent. Fed Chair Jerome Powell had already said that the central bank was likely to announce the reduction of its bond buying at its November meeting. The consensus jelled around the idea that the actual taper would begin in December and finished by the middle of 2022.
The minutes suggest a slightly quicker timeline. The minutes imply that the taper could begin as early as mid-November, perhaps slightly earlier than the market had been expected. There wasn’t much of a reaction, however. Bond yields remained lower on the day, while the S&P 500 fell from its high and the Dow Jones Industrial Average slipped into the red. The damage, for now, is quite minimal-with the Dow off just 0.1% and the S&P 500 up 0.2%.
That’s likely because even a slightly faster pace might not change the big picture all that much. “In our view, the bar to get moving on asset purchase tapering is very low for the Fed, and in terms of the likely composition of tapering, there appears to be considerable agreement,” writes Bob Miller, head of Americas fundamental fixed income at BlackRock. “Indeed, we already had the impression in July that the reduction in Treasury securities and MBS would occur at the same time, and assuming a November to June 2022 tapering timeline, this would imply a $15 billion reduction in the purchase pace per month, or a faster meeting-by-meeting adjustment schedule.”
For now, though, the market seems to be taking it one day at a time.