With the economy in better shape and based on the minutes from the most recent Federal Reserve meeting, there are rumours that the Fed could start tapering before year-end. Although we don’t feel tapering will begin until Janet Yellen takes over in the New Year, the market does seem to be preparing for this eventuality, with rising rates, falling gold prices, and some pretty steep falls in some of the riskier sectors. However, overall, tapering can be seen as a good thing as it supports the view that the economy is strengthening and may be able to stand on its own two feet one day without the high levels of stimulus the fed is currently providing.
Taper or no taper, the US market has been unstoppable. The Dow Jones closed above 16,000 for the first time ever on Thursday. With interest rates most likely staying at historic lows for the foreseeable future, one has to wonder what, if anything can stop this market from moving significantly higher over the coming months and years. Although the TSX has a long way to go before hitting new highs of its own, it has been quite strong and looks poised to test 14,000 in the near future, which would represent a rally of close to 20% since the lows of the summer. It appears that for the time being the wise move would be to ride the current momentum and remain invested through at least the end of Q1 2014 when tapering as well as seasonal affects could potentially cause weaker markets. Despite the headwinds the market could face in 2014, the long term picture looks brighter as the world economy continues on its road to recovery and the damage done to investor confidence subsides.
