Will Quantitative Tapering Cause the Market to Correct?

Will Quantitative Tapering Cause
the Market to Correct?
By www.ProfitableTradingTips.com

http://profitabletradingtips.com/profitable-trading-tips/will-quantitative-tapering-cause-the-market-to-correct
The stock market is overpriced but
keeps going up based on the
earnings of a few high tech stocks.

Now there has been a drop of a
few percent and analysts are
speculating that this may be the
prelude to a stock market
correction.

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Before We Continue…

The cause may be the Federal
Reserve.

The Fed has announced that it is
going to keep raising interest rates
slowly but surely but more
importantly the Fed is going to sell
the bonds that it accumulated
during its quantitative easing
program and put the money back
in the US treasury.

This will mean taking $4.5 trillion
out circulation.

Our question is, will quantitative
tapering cause the market to
correct?

Is It Different This Time?

cnbc writes that the most recent
drop in tech stocks may predict
an overall market decline.

They believe that it is more than
just specific news about specific
stocks that is driving high tech
stocks down.

“hickey believes it is not just
fundamental news driving the
sector lower, but it could be a
reaction to the federal reserve’s
announcement wednesday to roll
off its $4.5 trillion balance sheet.

“when the qes were announced by
the fed, stocks jumped across the
board before the actual buying
occurred.

we may be seeing the reverse
happen following wednesday’s fed
meeting when they announced qt
[quantitative tapering],” he wrote.

When the Fed sells its bonds and
puts the money back in the
treasury it will be like collecting that
amount of money in circulation and
sending it back to the government.

It will be a deflationary move and
could easily drive stock prices
down.

Quantitative Easing
Becomes Quantitative
Tapering

business insider writes about the
Fed’s plan to unwind financial
crisis emergency measures and
what that will mean.

“as it responded to the us
economic slowdown and housing
crisis a decade ago, the fed
acquired treasuries and mortgage-
backed securities to push down
borrowing costs.

but with the economy back on its
feet, this emergency measure the
key part of what’s known as
quantitative easing is no longer
needed.

the fed began tapering its
purchases in 2013 and now wants
to actively get rid of the bonds it
owns.

to do this, it won’t reinvest some of
its bonds as they mature and that
way, they’ll roll off its balance
sheet.

the amounts to start are $4 billion a
month in mortgage securities and
$6 billion in treasuries.

it would then raise these every
quarter until they hit $20 billion and
$30 billion.”

As quantitative easing and
resulting low interest rates
increased investors’ appetite for
risk so will quantitative tapering
slowly but surely decrease risk
appetite and have its toll on the
stock market.

The question is will quantitative
tapering cause the market to
correct in the next weeks, months
or years?

Smart investors and traders will
look ahead and hedge their
investing and trading to prepare for
the quantitative tapering correction.

Will Quantitative Tapering Cause the Market to Correct?

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Will Quantitative Tapering Cause the Market to Correct?