Robert Frost once said, "In three words I can sum up everything I've learned about life - it goes on." Somehow these immortal words from the greatest American poet seem fitting for today, the day after Fed day, and the precipice that awaits us on the other side of a meeting that's been hyped, discussed and anticipated for the better part of four months.
Despite the build-up, the unexpected move to delay tapering caught markets by surprise, with stocks and bonds soaring and the dollar plunging on the news, but ultimately the decision to wait only defers the inevitable.
"We've just had too much taper-talk and I think people just want to get it behind us" says Sam Stovall, chief equity strategist at S&P Capital IQ in the attached video, adding that a "digestion of the recent gains" in the coming days would not surprise him. If he's right, and stocks do lose some ground in the short term, Stovall says that could serve as a spring board for the next leg of a rally that could push the market higher.
In fact, longer term, Stovall and the S&P Capital IQ Investment Policy Committee are now more bullish than ever. In a note to clients after the Fed announcement they "raised their 12-month price target for the S&P 500 to 1845 from 1780, implying a near 7% increase from the September 18th closing level. Our asset allocation remains unchanged, with a recommended overweighting of equities, and a cyclical sector bias. We are maintaining our suggested under-weighting of bonds."
"People want to hear some good news about the economy going in to 2014," he says, "but we really need to flick the switch and go from liquidity-led to fundamentally-driven and then we can focus more on valuations and the things that are normally looked upon by fundamental analysts."
Like earnings season, which will soon see JPMorgan Chase (JPM) kicking off the earnings parade just three weeks from now, on October 11th, as the new first member of the Dow to report its third quarter results. This as Alcoa (AA) is being dropped from the index after the close this Friday.
And lest we forget, lawmakers in Washington will also likely do their part to grab the national spotlight as they engage in another death match over the budget. As many have surmised, DC gridlock could be the next big market headwind.
"We've had to deal with Congress for the last couple of years and I think a lot of people are just tired of playing cry wolf," Stovall says, adding that he thinks "most people would rather just go back to the basics."
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