How Do You Solve a Problem Like the Taper?

In the Sound of Music, the nuns sing “How do you solve a problem like Maria?” These days, investors are asking, “how do you solve a problem like the taper?”

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How else to explain the drop in the stock market today? The Dow Jones Industrial Average has dropped 0.2% to 15,861.26 thanks to big losses Verizon (VZ), which has fallen 1.4% to $47.60, Procter & Gamble (PG), which has declined 1.2% to $80.72, and McDonald’s (MCD), which is off 1.1% at $944.42. The S&P 500 has dropped 0.4% to 1,780.27.

Bespoke Investment Group how the market might react:

One thing to make note of is the market's performance in the two weeks leading up to Fed Days this year…the S&P has posted nice gains in the two weeks prior to all seven Fed Days this year, but the index has actually declined 1.27% in the two weeks leading up to tomorrow's Fed Day. If the Fed does not announce a taper tomorrow, we would expect the index to rally significantly since it has been selling off in anticipation of a potential taper so far this month. If the Fed does announce a taper, we don't expect the market to like it one bit initially, but given the fact that we've already been selling off into the event, we could see an initial wash -out and then see buyers step back in on a "sell the rumor, buy the news"-type event.

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Of course, the question remains: What will the Fed say?