North American markets racked up solid gains throughout October but they have stalled somewhat amid increasing uncertainty about when the Fed might start tapering its US$85 billion of monthly bond purchases, particularly after strong employment and economic growth reports released last week.
Analysts say that U.S. markets could be in for some kind of retracement with the Dow industrials up more than 20 per cent year to date. Traders also looked ahead to Thursday when the U.S. Senate banking committee will quiz Janet Yellen, President Barack Obama’s candidate to become the next chair of the central bank. Yellen has a reputation for being a dove as far as stimulus is concerned and traders will be listening for any hints as to whether she thinks the economy is strong enough to start tapering those purchases that have supported a strong rally on many stock markets.
“ I don’t expect the Fed to do anything different than they have,” said John Stephenson, vice-president and portfolio manager at First Asset Funds Inc.
“The reality is, they’re going to be accommodative. I think that most people think (tapering will start) at the earliest, at the end of the first quarter. I think it could easily be the end of the second quarter or later.”
I personally think that we will not see any tappering until the Debt ceiling issue is behind us in March. Just remember that markets will fluctuate in the weeks ahead. There is no way to avoid it. Just be prepared to see a bit of volatility and restrain yourself from reacting. That is the most important part of investing successfully.