With earnings season behind us, stocks are taking a breather after touching new all-time highs last week. The current bull market just turned five years old, and the most recent AAII survey indicating bullish sentiment is only slightly above it’s historical norm, has some strategists believing that the market has more room since optimism isn’t at an all time high.
Peter Kenny, CEO of the Clearpool Group, believes the Fed, not market sentiment, will have the final say in where markets are headed. As if right on cue, another all-important FOMC meeting begins next week, where Janet Yellen and other members will meet to discuss the ongoing 'taper' of bond purchases, with Yellen to hold her first press conference as Fed Chair as well next Wednesday.
With an uptick in job growth, and now seemingly sustained (yet small) demand, Kenny says, “as a direct result of this, we’re going to see tapering [continue]. Tapering in March will get us down to a $55 billion monthly mark in terms of asset purchases, so the taper continues moving forward.”
Kenny sees the Fed’s continued tapering hurting some parts of the market, but big cap names will be just fine. “Tapering will effectively take liquidity out of the market, take some of that high-beta, high-alpha trade out of the market,” he says. “It will have a dampening effect on Nasdaq (^IXIC) and Russell 2000 (^RUT), but on the other hand, should not have an effect on the Dow (^DJI) and S&P 500 (^GSPC).”
With an ongoing taper that Kenny sees Yellen continuing in earnest, he predicts 7 – 10% gains in the broader market by the end of the year.
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