The minutes from June 19’s FOMC meeting set off a storm of volatility, leaving many investors worried that a tapering of quantitative easing would spell the end of easy money. Over the last month, asset management firms quickly moved to produce thought leadership aimed at calming investor concerns and informing them about what a potential taper could mean for their holdings.
While last week’s comments from Federal Reserve Chairman Benjamin Bernanke quelled concerns about a potential taper and sent stocks on a tear, the responses to Fed tapering from thought leaders illustrate the different perspectives out there regarding volatility in the current markets. Here are the top five QE tapering commentaries leading fund firms posted online for their financial advisors:
BlackRock: A Talk of “Taper Tantrum” and Tired Technicals
BlackRock’s Peter Hayes and James Schwartz, both Managing Directors with the firm’s muni group, discuss the market correction in June that followed the Fed’s discussions of a possible QE Taper. Hayes and Schwartz argue that the correction was needed to restore attractive valuations to munis and the pair recommends overweighting in state-tax backed and essential service bonds.
BlackRock Municipal Market Commentary
In this blog post, President and CIO Art Steinmetz recommends that despite recent volatility, investors remain focused on the long term. Steinmetz argues that “the Fed won’t wind down quantitative easing until it can really see the whites of the expansion’s eyes.” The post recommends equities with growing dividends and EM stocks, which may be undervalued.
Art Steinmetz Posts in the OppenheimerFunds Blog
Inthe latest update to Bill Gross’ monthly Investment Outlook series, Gross employs an extended sailing metaphor and gives reasons why the firm feels that investors should not “jump ship” and move assets into the money market. The piece asserts that the Fed’s view of the economy may be too rosy, lessening the likelihood of tapering occurring soon. Additionally, Gross points to below-target inflation and the Fed’s own statements that it will maintain policy rates after the expiration of QE as reasons for investors not to panic. The article predicts low but positive returns in the years ahead.
Bill Gross’ Investment Outlook
In Franklin Templeton’s Beyond Bulls & Bears blog, Franklin Strategic Income Fund manager Eric Takaha discusses the upside of the Fed’s taper statements: the central bank sees signs of an improving economy. To help investors cope with rising rates, Takaha recommends looking towards high-yield bonds and bank loans. The article notes that headwinds such as slowing earnings growth may hinder recovery.
Franklin Templeton Blog
J.P. Morgan’s Dr. David Kelly, writing with Anthony Wile, analyzes statements coming from the FOMC noting that the Fed has no interest in changing federal fund rates from 0-0.25% range unless unemployment were to be, at minimum, below 6.5%. Kelly asserts that loose accommodative policy may actually be hindering growth by harming savers and discouraging lending. Moreover, the longer the Fed’s QE policies continue, the article continues, the more disruptive it will be when the program ends. Kelly predicts that rising rates could lead to normalization in markets and recommends that investors move holdings towards growth equities.
J.P. Morgan Supports Ending QE