Stock Market

The Fed began to tighten policy last autumn with the close out of QE 3. Now, there is intense
speculation the Fed will begin the next step in the tightening process with an initial increase to
short rates as soon as its Sep. meeting. The Fed is promising that once it begins the process of
raising rates, It will do so in a gradual fashion. Since all players know It is likely to raise rates a
couple of times at the least, investors are assessing how even a gradual and gentle process will
affect not just the economy but their rate of return assumptions as well. So, there are questions,
and when there are, it is normal to expect some trepidation in the market until one can get a
fuller sense of how the Fed is planning to proceed with the process. The market has been on the
flat side this year with intermittent quiet bouts of profit taking along with short and rather shallow
rallies. The market has been discounting the event of a change to a further tightening of policy
and I sure do not know whether the discounting process is just winding up or whether it will
proceed further until the event is at last upon us. Assurances from the Fed that short rates are
likely to remain low for a good while may have a countering force in the elevated p/e ratio
which has given little ground since earlier in the year.


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