A month ago, the Fed’s revelation that the downside risks to the economy had diminished triggered an immediate four-day selloff following the June FOMC meeting. While that dive ultimately served as the set up for what would become a very powerful and positive July for the S&P 500, the seeds of worry that caused the last slump are still very much rooted in the minds of investors.
A barrage of clarifications by Ben Bernanke and several other Fed heads has seen rates pull back in, and in turn, allowed stocks to take off and set fresh new highs.
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“I think this next Fed meeting is going to be much ado about nothing,” says Paul Schatz, president ofHeritage Capital in the attached video. “I don’t think it is going to be anything different than what he said (in Boston) just two weeks ago.”
While Schatz acknowledges the effect “the Fed’s media parade” has had on markets, he feels that the recent rebound in treasuries, which saw the 10-year yield (^TNX) ease back down to 2.5% from 2.75%, is more the result of what’s happened in the equity markets than economic news.
However, given the outgoing Fed chief’s well-established commitment to communication, Schatz says there’s always the risk that the market could misinterpret something – even something that’s been said before.
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“The Bernanke Fed has tried to be very open and transparent, sometimes confusing people because they’re so open and transparent,” he says.
Ultimately, no matter how many times and ways it has been said before, the Fed will soon start reining in its “easy money” stance. As much as stock and bond investors everywhere already know this, it appears that they prefer not to be reminded of the inevitable, which is why Fed day, once again, will be fraught with risk.