Over the last month the talk in the markets has been about Federal Reserve Chairman Bernanke’s answer to a question at a Congressional hearing. That answer was that the Fed “could” start tapering off their huge bond-buying programs that have kept interest at record lows the last few years. Such bond buying has given money to the banks which the banks have used in part to buy bonds and stocks. As that money tapers off, demand for bonds and stocks should drop.
The Fed statement today was that tapering could start later this year. Well, we are merely a couple weeks away from starting the second half of 2013. That should be all bond traders need to hear to keep the selling going in bonds that started last month. As usual, it will be traders who actually push the change in the market, not the Fed’s actual actions.
If you own bond funds, whether in your personal investments or in your 401(k) you should be pulling back. Far from being a safe haven, most bond funds should be money losers this year and probably 2014 as well.
You will also probably see less enthusiasm for stocks as well since the banks have also put a lot of money there since 2009. You should be compensating by going with the least volatile stock funds.
I have already made these changes for my client money that I manage. If you would like more help, including what funds should best, both in stocks and bonds, let me know – 704-698-1040 – Dave.