The Fed’s surprise decision on Wednesday to continue its level of quantitative easing came as a surprise to experts like PIMCO CEO Mohamed El-Erian and others on the Street, many of whom had anticipated a $10 billion to $20 billion reduction in monthly stimulus.
The S&P 500 fell about 0.25% on Thursday after a late rally on Wednesday, and the decision also pushed up gold prices, which have improved about 5% in the past day or so.
Market watchers remain divided about the direction of stocks in the coming months, with Marc Faber (left), publisher of the Gloom, Boom & Doom Report, adding to his permabear credentials.
Faber, speaking on Bloomberg Television right after the Fed’s announcement on Wednesday, said: “The markets are overbought. The Feds have already lost control of the bond market. The question is when will it lose control of the stock market.”
Faber says that his view of Janet Yellen, who may possibly replace Fed Chairman Ben Bernanke, as someone who will make the outgoing Fed leader “look like a hawk.” He also believes that current Fed policy is akin to “QE unlimited.”
Naturally, the Swiss investor’s outlook for the equity markets is quite negative.
“Well, the endgame is a total collapse, but from a higher diving board. The Fed will continue to print, and if the stock market goes down 10%, they will print even more. And they don’t know anything else to do,” he said in the interview. “And quite frankly, they have boxed themselves into a corner where they are now kind of desperate.”
Faber says he “always” buys gold as an insurance policy.
Sam Stovall, chief equity strategist at S&P Capital IQ, speaking on Yahoo Finance, said, “We’ve just had too much taper talk, and I think people just want to get it behind us.” Stovall (left) expects stocks could weaken in the short term, but might then have a “springboard” for a rebound. At the same time, he says, some of his colleagues also see further resistance as a short-term possibility.
Longer term, however, Stovall and the S&P Capital IQ Investment Policy Committee raised the group’s 12-month price target for the S&P 500 to 1,845 from 1,780, according to various news reports. That’s about a 7% increase. In the past month, the S&P 500 jumped roughly 4.2%.
“Our asset allocation remains unchanged, with a recommended overweighting of equities, and a cyclical sector bias,” the S&P note stated. “We are maintaining our suggested underweighting of bonds.”
And some market analysts say that gold and gold equities could benefit from the current situation. Since July 1, gold and silver equities have moved up 16%, while gold has improved 10%, according to Sterne Agee analyst Michael Dudas.
Check out Gross, Gundlach Cheer as Fed Holds Off on ‘Death Swim’ on ThinkAdvisor.