With the recent announcements from the Federal Reserve about ending monetary stimulus and considering mixed economic data, I think most would agree that the market is behaving very good taking profits and responding to a non-inflation environment.

For example, gold considered a barometer for inflation and gold is continuing a downward trend trading for less than 1300 per ounce which was predictable. For commodities, China reduced the demand for copper and industrial metals. And after signals from the Fed, industrial metals and precious prices are down and might go lower. Investors anticipate rise in US interests rates and that causes big sell-off in bonds, especially, 10-year Treasury bonds. We see volatility in the stock market, because it’s going through some adjustments as to be expected. Stock market generally is going up, which suggests that investors feel the end of Quantitative Easing is pushed further into the future because of mixed economic data.

When it comes to economy, the recent GDP report showed that economy is not getting stronger fast enough. In fact, based on the report, the economy weaker than Federal Reserve thought. With the government spending and other fiscal stimulus are about to end, it’s putting more pressure on private sector.

I think the market and government is trying to determine if the private sector is growing enough to offset tax increase and spending cuts that went into effect this year. According to the weaker economic data, it may not be. So, it may delay any policy changes at the Federal Reserve

Also, Bernanke said that if improving housing market continues the Fed could begin to curtail its monetary stimulus program. But lower economic data suggests that consumers are still struggling and unemployment is still high. It contradicts the argument that monetary policy will change by the end of the year. If anything, I think recent economic data will prolong easy-money policies and it will be a while before Federal Reserve backs away completely.

What do you think?

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