Let the Taper Begin
In late 2018 the FOMC learned a valuable lesson that they are intent on not repeating. At their most recent FOMC meeting Jerome Powell, chair, made it very clear that the large monthly asset purchases, $120 billion to be exact, will begin to be tapered. Powell also made it very clear that the eventual raising of interest rates would not occur until the taper was complete unlike the events of 2018 in which the FOMC tapered and increased short-term interest rates at the same time, much to market participants dismay.
Bottom line if all goes well scheduled monthly asset purchases will be trimmed and eventually reach zero sometime next year.
Interest Rates
The most widely followed interest rate, the 10-year US treasury, after having a startling move earlier this year from under 1% to over 1.7% dropped back down to the low 1.2% during the most recent slowdown due to the variant.
Whether Powell’s comments, or the turning of the variant, interest rates have taken note and moved up smartly to over 1.5% beginning the normalization of higher interest rates which is very good long-term for the financial system
Kyle Bass Predictions
In our Q4 Newsletter we noted some very positive predictions from local financial mogul Kyle Bass, namely oil reaching $100 a barrel before the year end and continued Federal Reserve protection along with a push through to the end of the variant.
Hopefully all of these predictions come true.
The Worst of Times the Best of Times
September and October tend to be the most challenging months for Capital Markets mostly due to large institutions, think Fidelity as an example, closing their books on the year which make for more volatile times. So far, this theme seems to have played true.
The good news is notwithstanding our 2018 example from above, November and December tend to be some of the better months of the calendar.
As we head to the end of the year, we will be watching all of these and many other things very closely and will be communicating live on our blog at street-cents.
Sincerely,
John A. Kvale CFA, CFP
Founder J.K. Financial, Inc.
$treet-¢ents 
Why October can be a Bumpy Month … Halloween? No
Our content in this venue is sometimes informative (we hope), sometimes clarification of headlines, sometimes educational, sometimes humorous and self-deprivation, and in this post more of a diary for our own education and collective remembrance.
Why October can sometimes be spooky for Capital Markets?
Probably the spookiest October that many may only read about is October 1987, but long-term historians will note that while the fourth quarter is generally a good quarter for capital markets (likely not the case this year with a FOMC yielding an interest rate rocket – ok, digressing), October can be rather spooky.
Why?
Year End for Many Mutual Funds – A very large number of mutual funds in the order of North of 20% have their year-end in October. This creates unique pressures across-the-board both on stocks that have done bad and false increases on stocks that maybe have done good as mutual funds close their books down for the year. As a sidenote last month, September garnered over 10%-year end mutual fund companies.
Black Out – With the official start of earning season being early October, publicly traded companies are restricted from purchasing their own stock. As of the most recent reading approximately 30% of exchange volume was estimated to be company buy backs…. Yes, your read that correct…30% of daily volume … Wow! Once the black out commences, by law companies are no longer allowed to purchase their company stock until a certain date after their public filing. The purpose of this is of course to cut back on any perceived manipulation. This absence of a normal one third volume of trading can make for “thinner” markets and spookier.
Confession Time – The Clock has run out – Publicly traded companies, many of which are on a fiscal year (tax year ends 12/31), the final quarter becomes the quarter of confession especially If earnings are skewed much differently than what capital market participants expect. This force is a pseudo-named “Confession”, as the calendar has just run out of rope forcing the final grade for the year in some cases.
Seasonality – As mentioned above, weird things have happened in October, creating a weird feed back loop. This means, that by knowing sometimes things can get spooky in this month, market participants and thereby Capital Markets can get spooked easier!
Mix it all up and we get a witch’s Brew of spooky times in October.
But guess what?
We have let you know in advance, and we are not calling for a Spooky month, but there is a reason this post/memoir/diary is coming out now…. Just after a few spooky huge up days in Capital Markets…
Boo… We have your back!
John A. Kvale CFA, CFP
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Posted in Education, FOMC, Interest Rates, Investing/Financial Planning, Market Comments, Why
Tagged 1987 Crash, October 1987, October Blues, Seasonality, Spooky October