Federal Reserve Announced It Will Pick Up Taper Pace... & Stocks Rallied

In this post, I'm sharing where we are on the S&P 500 Index.

Stocks bounced back from a Monday/Tuesday slump today after the Fed announced it would 2x the pace of its asset purchase tapering next month.

Here's how the major indices fared.

  • SPX +1.6%
  • Nasdaq Comp +2.2%
  • DJIA +1.1%

Technology and health stocks were the top gainers, with all stocks except energy in the green.

The 10-year US Treasury yield was 2.1 basis points higher at 1.46%.

The Fed said today it would begin reducing its asset purchases by $30 billion per month starting in January 2022, up from the previously established $15 billion pace, in large part because of much faster inflation growth as well as continued recovery [heat] in the labor market.

The central bank said that it would cut $20 billion in monthly Treasury securities purchases and $10 billion in agency mortgage-backed securities.

"We are phasing out our purchases more rapidly because with elevated inflation pressures and a rapidly strengthening labor market, the economy no longer needs increasing amounts of policy support," Federal Reserve Chairman Jerome Powell said at his press conference after the FOMC decision.  Powell also noted the Omicron variant does add some uncertainty but he expects the US economy will continue to expand despite rising COVID cases.

Meanwhile, the Fed lifted its projections for core inflation, expecting to finish this year at 5.3%, up sharply from the 4.2% it expected in September. Next year, inflation is expected to slow to 2.6%, but that was higher than the 2.2% seen three months ago.

Here's how the S&P 500 responded...



That makes the weekly look like this...



Even so-called fundamentalists would call this bullish.

So... how could that be?  

In my mind, it's because stocks benefit from inflation... as long as they're able to push their rising input costs through and have them stick.

And it seems that's exactly what they've been able to do.  Just look at the cost of used cars over the last year and a half.

Higher prices are sticking... so companies are doing just fine.

Rally caps anyone?

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