Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
Elliott Wave Theory: Is Elliott’s Theory Enough? - 27th Apr 17
Billionaire Investor Paul Tudor Jones Says Stock Market Valuation Is “Terrifying” And He Is Right - 26th Apr 17
The Great BrExit Divides - Britain, USA and France - 26th Apr 17
10 Facts That Show Our Taxes Are Worse Than You Thought - 26th Apr 17
What Trump’s Next 100 Days Will Look Like - 26th Apr 17
G20: SURPASSING THE 2nd GLOBAL STEEL CRISIS - 26th Apr 17
What A War With North Korea Would Look Like - 25th Apr 17
Pensions Are On The Way Out But Retirement Funds Are Not Working Either - 25th Apr 17
Frank Holmes : Gold Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply - 25th Apr 17
3 Reasons Why “Spring Forward, Fall Back” Also Applies To Gold - 25th Apr 17
SPX may be Aiming at the Cycle Top Resistance - 25th Apr 17
Walmart Stock Extending Higher - Elliott Wave Trend Forecast - 25th Apr 17
Google Panics and KILLS YouTube to Appease Mainstream Media and Corporate Advertisers - 25th Apr 17
Gold Price Is 1% Shy of Ripping Higher - 25th Apr 17
Exchange-Traded Funds Make Decisions Easy - 25th Apr 17
Trump Is Among The Institutionally Weakest National Leaders In The World - 25th Apr 17
3 Maps That Explain the Geopolitics of Nuclear Weapons - 25th Apr 17
Risk on Stock Market French Election Euphoria - 24th Apr 17
Fear Campaign Against Americans Continues Nuclear Attack Drills in New York City - 24th Apr 17
Is the Stock Market Bounce Over? - 24th Apr 17
This Could Be One Of the Biggest Winners Of The Electric Car Boom - 24th Apr 17
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17
Can Marine Le Pen Win? French Presidential Election Forecast 2017 - 21st Apr 17
Why Stock Market Investors May Soon Be In For A Rude Awakening - 21st Apr 17
Median US Household’s Wealth Has Declined by 40% Since 2007 - 21st Apr 17
Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefit - 21st Apr 17
U.S. Stock Market and Gold, Post Tomahawks and MOAB - 21st Apr 17
An In Depth Look at the Precious Metals Complex - 20th Apr 17
The Real Story of China’s Strong First-Quarter Growth - 20th Apr 17
3 Types Of Life-Changing Crisis That Make You Wish You Had Some Gold - 20th Apr 17
The Truth is a Dangerous Thing - 20th Apr 17
2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia - 20th Apr 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

QE and the Stock Market - The "Taper" Is Here... This Is What You Need to Know

Stock-Markets / Stock Markets 2013 Dec 19, 2013 - 03:17 PM GMT

By: DailyWealth

Stock-Markets

Porter Stansberry writes: We knew it would happen eventually... so now what?

Yesterday, I explained how the Federal Reserve's quantitative-easing programs have transferred enormous wealth into the hands of the very rich.

Today, I'm going to show you what's going to happen now that the Fed is beginning to rein in these quantitative-easing bond-buying policies. This is what people refer to as "tapering."


In short, not one single sector of the stock market is completely safe... But there is a "window" of opportunity.

Let me explain...

Since the housing market collapse, the Fed has instituted three separate rounds of quantitative easing... QE1, QE2, and QE3.

The Fed also tried something called "Operation Twist," which attempted to replicate the effects of quantitative easing without printing more money.

A lot of the extra QE dollars found their way into the equity markets and have driven up stock prices. The chart below shows how the market reacted to the Fed opening and closing of the money spigot...

With trillions of extra dollars sloshing around the economy, some are bound to be dumped into equities and drive up prices. Notice that every peak and valley for the past five years corresponds with a Fed QE action.

You may think that any policy that helps your investment account can't be all bad. But asset surges predicated by dollar printing never work out well.

It's impossible to know when this Fed-induced market exuberance will end. But we know it will.

Even the Fed knows quantitative easing is not sustainable. That's why the Fed has already tried three times before to stop the charade.

And yesterday, the Fed announced that it will be reducing – or "tapering" – QE3 by $5 billion per month. Notice, in the table below, that every time the Fed stops quantitative easing, the equity markets have pulled back.

Specifically, take a look at the periods below marked with gray highlights. The market has dropped throughout each of these "tapered" periods.


​The market has obviously been indiscriminately selling whenever the Fed hints at tapering its quantitative easing.

The "tapered" periods in the table above (the rows highlighted in gray) lasted an average of 84 days. And the market lost an average of 16% over those periods.

We examined more than 2,000 large U.S. stocks and 39 industry segments to see if we could spot trends that would improve our performance (or limit the damage) as tapering begins. The results of our analysis can be found in the table below...

Clearly, in times of uncertainty, investors hang onto companies that sell the stuff people really need: utilities, food, and medicine. And they buy the things people can't stop using, like sodas and nicotine. On the other hand, construction-related industries and companies with a lot of interest-rate exposure struggled during the taper periods.

​What surprised us was that certain industries had a lot of companies whose stock actually advanced during these periods. You can see this in the column labeled "Percent Winners."

For example, if two out of the 20 companies in a given segment actually had stock-price gains during the taper periods, you'll see 10% (2/20) reflected in the "Percent Winners" column.

Looking at both metrics, our analysis exposed a cluster of industries that all sell mass consumer goods with inelastic demand: big tobacco, beverages, pharmaceuticals, and the stores that sell them. The one thing they have in common is that they can all be growth industries, even in the face of stock-market retrenchment.

Think about the products those companies sell. Marlboros, Cokes, Twinkies, Tylenol... These are not products people stop buying when interest rates rise. And you can buy them at any store on any corner in any town.

That's why, after taking in all the data, we think one of the best ways to play this is to dig into the retailers that sell these goods. Buying the right retailer is like buying a basket of all the products that people need most.

You'll notice the companies in the "Food and Drug Retailers" and "General Retailers" segments lost on average 8%-13% over the Fed's taper periods. That's not too bad compared with the overall market. But when we dug deeper, we noted that 14 companies in these segments enjoyed stock-market gains over the taper periods... and some of the gains were big.

If recent history is any indication, big gains may be hard to come by in the coming months.

But we believe we found the best place to look for opportunity, both during quantitative easing and now that we've reached the "taper."

Regards,

Porter Stansberry

P.S. In the latest issue of my Investment Advisory, we recommended our favorite "general retailer." Its stock rose 7% during the previous taper periods. It's exactly the kind of company you'll want to own as the Fed closes the money spigot. You can get all of the details with a Stansberry's Investment Advisory subscription. To learn more, click here.

Editor's note: If you'd like more insight and actionable advice from Porter Stansberry, consider a free subscription to DailyWealth. Sign up for DailyWealth here and receive a report on how to prosper despite the Fed's inflationary policies. This report will show you how to protect your hard-earned money from what Porter has dubbed the "End of America." Click here to learn more.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

peterpalms
21 Dec 13, 23:15
Tapering

Tapering is just a synonym for "stealing less" from taxpayers


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife