When bad news is still good news and good news is still bad news for the direction of the US market, has the full extent of FED tapering REALLY been priced in… and if it hasn’t, to what extent has it been? I don’t think anyone knows or even can know the answer to that question.
Today’s market opened in negative territory after investors learned that the ADP private sector employment numbers for November had beaten estimates by 16% and that the US trade deficit narrowed on record exports. However, around 30 minutes after the open, the market reversed course and shot up quickly on word that the ISM service index missed estimates in November.
What kind of friggin’ crazy world are we living in? Anyone who can look at you straight faced and tell you that future tapering “has been priced in” is full of shit. When tapering finally begins, and I expect it to sometime next year as the global economy gains traction, this market is going to witness a swift drop until investors realize (again) that there’s no other game in town and that tapering is actually a positive for companies and the economy. I wouldn’t be surprised to finally get that pullback of 10-15% you’ve been hearing about, but don’t expect any setback to last longer than a few weeks.
If you haven’t already, it’s time for to start positioning for rising rates. Keep your yield higher than your duration and you should be fine on a total return basis when the dust settles.