Breakout

The Fed won't launch taper this week and here's why

Breakout

Ask any gambler or Wall Street pro and they’ll surely tell you that 50-50 odds make for bad bets and lousy investments. With that in mind, the lead up to Wednesday’s long-awaited, much talked about decision by the Fed is hardly load-the-boat material, so to speak.

“It is a bit of a toss up, but I don’t think they’re likely to do anything,” says Jeff Kleintop, chief market strategist at LPL Financial in the attached video. “I think the Fed needs a little more time” before scaling back on the $85 billion a month it pours into the bond market.

Stifel Nicolaus trader and Breakout regular Dave Lutz takes it one further, writing in a note to clients today that “professionals have no idea on the taper.”

Ultimately, many investors will try to convince you that it doesn’t really matter when it happens anymore since the question of if it’s happening has been taken off the table. In the long-term, that’s probably true, but in the short term, there’s certain to be a swirl of reaction -- in virtually every major market category -- no matter what Bernanke & Co. decide to do and say tomorrow.

In the meantime, with all eyes glued to tomorrow’s 2pm decision, a small but growing avalanche is forming and gaining speed in the form of failing expectations for fourth quarter earnings.

At the core of this waning optimism is the reality that, according to FactSet, nearly 90% of the corporate profit guidance offered has been negative. It’s a fact that has triggered alarm with analysts prompting a flurry of downward revisions to their estimates, taking the consensus on the S&P 500 to 6.5% from 9.5% at the start of the quarter.

“Frankly, analysts were on crack thinking we were going to get (double digit earnings growth),” Kleintop says, arguing that the current mid-single-digit number “isn’t a bad one,” and is probably “a little better than what the market has priced in.”

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