The stock market stabilized late last week but the damage was done by mid-week as the technical deterioration had given advance warning of the market’s decline. Last Monday’s feeble reaction to the powerful gains on the jobs report was disappointing and short-term sell signals were generated.
The financial media is attributing the stock market decline to the growing consensus that the Fed may announce changes in their bond buying program at the conclusion of this week’s FOMC meeting. Thus, the dreaded tapering is again the focus of many analysts.
In August, I explained my view that more taper tantrums would be bullish, and the stock market’s correction ended about two weeks later. Since then, the improvement in the unemployment numbers has convinced some that the Fed can now justify tapering.
Though it has not been widely discussed, it is my opinion that fear of deflation is likely to keep the Fed from changing its policy now. Last week’s Producer Price Index reflected almost no inflation at the producer level, and this Tuesday, we get the Consumer Price Index. So what should you do?
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