My Attempt in Forecasting Market Volatility

My forecast in the Philippine Stock Market will be volatile in the month of September. The reason being is that on September, The Federal Reserve System (FED) will have a policy meeting on September 17-18 and on that date the tapering of the FED’s $85 billion stimulus will be discussed.

Why are people so afraid of that?

Because currently the FED is printing money to buy bonds and since investors are selling the bonds that the FED is buying, the proceeds will theoretically go to the economy or other investment vehicle like the stock market. To illustrate:

FED1

The FED’s $85 billion monthly bond buying expands the FED’s balance sheet. With that in mind, we can say that we can measure impact of the FED’s stimulus in the US stock market by correlating the FED’s Balance Sheet and S & P 500 index.

FED2

The above chart reveals that every time the FED’s balance sheet goes sideways, S & P 500 index goes volatile as show in the enclosed points below:

FED3

Bloomberg reported this August 15,2013, 10 PM:

U.S. Stocks Drop as Economic Data Fuel Stimulus Concern

 

Do I think that the FED will taper the $85 billion stimulus this September?

In my opinion, no the FED will not but there will be great uncertainty that an investor can exploit before the policy meeting results will come out.

How do I think it will affect the Philippine economy?

In my opinion, not substantial to merit any negative concerns or a downward change in forecasted earnings.

How should an investor take advantage of this information?

In my opinion, wait in cash and take advantage of the “expected” market volatility.

 

 

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

Disclosure: See Portfolio page for my holdings.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s