Before we get into the details of the Fed’s decision to end its bond buying program, and what that means going forward, I want to make an exciting announcement.
The Weekly ETF Report is moving to a new day, Friday. The change will start next week on Friday, Nov. 7. We will no longer be publishing each Wednesday.
One big reason for this change has to do with the schedule of my weekly podcast, Doug Fabian’s ETF Strategies. That podcast is broadcast Friday mornings, so along with the new publication day for the Weekly ETF Report, you’ll get an audio link to the latest 30-minute-plus recap of what’s going on in the markets, as well as all of the action in the world of exchange-traded funds (ETFs).
So, be sure to mark your calendars, as next week you’ll be receiving your Weekly ETF Report on Friday, not on Wednesday. Now, let’s focus on the Fed.
As was widely anticipated, today the Federal Reserve announced the end of its massive bond-buying program. The Federal Open Market Committee (FOMC) announced that it would no longer purchase mortgage-backed and Treasury assets, also known as quantitative easing (QE), although it did so basically by omission.
While I think the Fed getting out of the money-printing business is a good thing for the overall health of the economy, when it comes to the short- and medium-term effect on the equity markets, things may not be so healthy.
Consider that since the Fed began the original QE in December 2008, stocks have risen substantially throughout every round of easing. Unfortunately, when the different phases of quantitative easing have ended (QE1, QE2, Operation Twist), stocks have suffered a substantive sell-off.
In fact, the main reason why things picked up in the markets after the end of those respective QE rounds was because the Fed implemented more QE.
Will this happen again? As of now, that seems unlikely. But if stocks and the economy begin to really falter, I wouldn’t put it past the Fed to take action to stimulate both. Perhaps the biggest thing to watch for is not more QE, but rather when the Fed plans to begin raising interest rates again.
Judging by today’s FOMC statement, it’s hard to tell what the Fed has in mind in terms of a time frame for rate hikes. Sometime next year is nearly a certainty. But when, at what pace, and what increased interest rates will do to stocks and bonds are real unknowns right now for investors.
I think the only way to be certain you can protect yourself from a big post-QE sell-off, and to make sure you are in the market when the bulls are running hard, is to have a proven plan in place that operates on objective market rules and that follows the key trends that never fail to tell us precisely where the market is at all times.
If you want to discover more about how to this proven plan works, and how it can work for you, then I urge you to check out my Successful ETF Investing newsletter today.