LPL Market Signals: To Taper or Not to Taper, That Is the Question

Market Blog

Thursday, May 27, 2021

To Taper or Not to Taper, That Is the Question

Inflation and tapering have dominated the conversation lately and this week in the latest LPL Market Signals podcast, Ryan Detrick and Jeff Buchbinder dig in and explain why tapering shouldn’t really be much of a surprise, while touching on why the inflation threat remains transitory. They also discuss our outlook for stocks the remainder of this year, along with why developed international could finally be looking like a sustainable investment, after years of underperformance.

Stocks Outlook

After a huge start to this bull market, Jeff pointed out that history would say year 2 would probably be fairly solid as well, but to expect more volatility. Ryan noted that no year 2 of a new bull market has been lower since World War II and we don’t expect that trend to end this time around. With massive fiscal and monetary policy, along with an incredible jump in earnings, it is tough to stay that stocks are ahead of themselves. We think the record jump in earnings helps to justify current levels and likely continued equity strength, However, in the second half of the year, as inflationary pressures build, interest rates potentially rise further, and this bull market gets a little older, the pace of stock market gains will likely slow and come with more volatility.

View enlarged chart.

Taper Time?

The Fed minutes opened the door for the possibility of tapering, which seemed to catch some off guard, but Ryan noted it shouldn’t have. Remember, the Fed is buying $120 billion worth of Treasuries and Mortgage Backed securities each month, and tapering simply means they will start to buy less each month.

The big worry is inflation runs hotter than expected; the Fed is caught behind the 8 ball and has to hike rates sooner than expected. Jeff pointed out that tapering sometime later this year is what we do expect and it could be announced later this summer, with the actual tapering taking place in early 2022. With the economy firmly recovering, tapering is only a normal part of the healing process. Ryan ended the conversation talking about his son’s tough U9 soccer loss in the Championship.

Finally Time for Developed International?

Developed International, specifically Europe, has lagged the U.S. for years, even decades. Jeff pointed out that Europe could soon see much of the explosive growth that the U.S. and part of Asia have recently experiences, as Europe eventually gets the pandemic under control. In addition, he noted that make up of Europe is more value centric, which could be another tailwind as value does better during the reopening. Lastly, Ryan points out that for 20 years, Europe has gone nowhere. From a technical point of view, there could be plenty in the tank for Europe to continue to move higher, as it has formed a multi-decade base.

View enlarged chart.

You can watch the full video below and directly on our YouTube channel. Please be sure to subscribe to the LPL Research YouTube channel so you don’t miss anything! Also, if you like our channel, please give us a positive review—it helps more than you know!



This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

For Public Use – Tracking # 1-05148492