What follows is an excerpt from Canaccord Genuity’s Morning Coffee report.
Canaccord Genuity Portfolio Strategist Martin Roberge commented that for all the fears surrounding September as being a cruel month for investors, so far, global equity markets have shaken off this reputation.
Indeed (as of Monday morning, September 16, 2013) the S&P 500 is up 3%, the DAX in Europe is up 4.8%, the Nikkei 225 in Japan is up 7.6% and the Shanghai Composite in China is up 6.6%. This strong performance is noteworthy considering the various sources of market uncertainties such as the Syrian situation, rising interest rates, the budget/debt ceiling negotiations outcome and the Fed tapering announcement.
On the latter point, the decision will come this week as the FOMC meeting is held Wednesday and Thursday. Obviously market volatility should remain high before and after the Fed decision given the impact the Fed balance sheet expansion has had on the performance of risky assets over the next few years.
Roberge also commented that while a moderation in the Fed’s bond purchase programs should not pose a risk to stocks, investors may want to focus on the rate-of-change of the Fed’s balance sheet which exhibits a strong correlation with equities in the near term.
At the margin, history suggests that a slower pace of balance sheet expansion could have a negative impact on stocks and counter-intuitively a positive one on bonds.