/perspectives/global-cio-outlook/determined-to-taper

Determined to Taper

The release of the July Federal Open Market Committee meeting minutes today and the Jackson Hole Economic Policy Symposium starting tomorrow are likely to dominate near-term activity in financial markets. Despite mixed economic data, it appears increasingly likely that some form of tapering will be announced at the FOMC’s September meeting.

August 20, 2013    |    By Scott Minerd

Global CIO Commentary by Scott Minerd

Market participants remain more focused on the possibility of a reduction in the Fed’s asset purchases than on economic data. Recent comments by Federal Reserve presidents, including the particularly dovish Charles Evans of the Chicago Fed, suggest the U.S. Federal Reserve is likely to announce a tapering of quantitative easing after the Federal Open Market Committee’s September 17-18 meeting. Wednesday’s release of the July FOMC meeting minutes and the Fed’s Jackson Hole Economic Policy Symposium, which begins on Thursday, will provide investors clues about the central bank’s upcoming moves. Importantly, there is a growing consensus that some form of tapering is on the way. Recent economic data is decidedly mixed, and not enough to justify rapid tapering in our opinion. However, since June the Fed has made the markets take their medicine and we see a strengthening in commitment by the Fed to hold to its guidance on the path of the program. Now the internal debate is likely no longer “when” but “how much?” The size of the proposed monthly decrease was originally thought to be $20 billion, but economic headwinds, particularly from the housing sector, make us think that the Fed may settle on a monthly reduction of around half that amount (evenly split between Treasuries and mortgage securities). Regardless of the amount of tapering and its composition, the bottom line for investors is that financial markets will probably be dominated in the coming month by a great deal more of tapering-related noise. This would be a negative for risk asset prices, and is likely to continue to drown out a number of other fundamental economic and policy-related issues including the full impact of the sequester and Washington’s looming budget and debt ceiling debates.

Rising Uncertainty for September

Historically, September is the worst month for U.S. stock market performance. Since 1929, the S&P Composite Index has averaged -1.1 percent for September, making it one of only three months with negative average returns over that time. The worst performing single month over this time period was September 1931, when the S&P composite fell 30 percent. There are several macroeconomic uncertainties facing the United States and the global economy as we head into September. The potential tapering of the U.S. Federal Reserve’s asset purchase program, the budget debate in Washington, and the German election could all increase volatility in global financial markets.

AVERAGE MONTHLY RETURNS OF THE S&P 500 INDEX (1929 – 2012)*

CUMULATIVE NYSE ADVANCE/DECLINE LINE AND THE DOW JONES INDUSTRIAL AVERAGE

Source: Bloomberg, Guggenheim Investments. Data as of 12/31/2012. *Note: Data reflects average monthly price returns.

Economic Data Releases

U.S. Housing Data Solid Despite Higher Mortgage Rates

  • Existing home sales jumped 6.5% in July to an annualized pace of 5.39 million. The gain was much better than the expected 1.4% and brought sales to the highest level since November 2009.
  • July housing starts rose 5.9% to an annualized pace of 896,000 with the entire increase in multi-family starts.
  • Building permits increased to a rate of 943,000 in July, up 2.7% after falling the previous two months.
  • The NAHB housing market index for August continued to make multi-year highs, reaching 59.
  • Mortgage applications fell 4.6% for the week ended August 16th, the ninth-week of decreasing applications out of the last 10 weeks.
  • Industrial production was largely flat in July as production in the manufacturing sector fell for the first time in three months.
  • The index of U.S. leading indicators increased 0.6%, led by gains in the financial indicators.
  • University of Michigan consumer confidence fell to 80 in August from July’s six-year high.
  • Initial jobless claims dropped to 320,000 the week ended August 10th, which was nearly a six-year low.
  • The Empire Manufacturing Index unexpectedly fell in August to 8.24.
  • The Philadelphia Fed index also declined unexpectedly to 9.3.
  • The CPI edged up 0.2% in July, putting the year-over-year number at 2.0%.

Euro Zone Trade Surplus Widens

  • The euro zone’s trade surplus widened in June, with exports up 3.0%, the first gain in three-months.
  • Consumer prices in the euro zone dropped 0.5% in July to a year-over-year rate of 1.6%.
  • U.K. retail sales excluding autos rose for a third straight month, jumping 1.1% in July.
  • U.K. house prices fell for the first time this year in August, down 1.8%.
  • Japanese exports quickened to a year-over-year growth rate of 12.2% in July, but were outpaced by a surge in imports of 19.6%.
  • Japan’s All Industry Activity Index fell 0.6% in June, the first decrease this year.

FEATURED PERSPECTIVES

July 17, 2018

No One Wins a Trade War

If you want to see who the real victims of tariffs are, go look in the mirror.

May 16, 2018

Positioned for Choppier Waters

After several quarters of low volatility, tight spreads, and abundant liquidity, financial conditions are shifting.

May 09, 2018

Forecasting the Next Recession: Updating Our Outlook for Recession Timing

New developments in fiscal policy, the labor market, and the neutral interest rate suggest that the expansion could extend into the latter half of our recession range.


VIDEO

Forecasting the Next Recession 

Forecating the Next Recession

Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”







Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.