Should You Fear the Taper?
With the Federal Reserve currently tapering its quantitative easing, a look at history may shed
light on the impact of the change on financial markets, including interest rates and stocks.
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Interest rates have generally risen during quantitative easing, as the chart above suggests. That
may be counterintuitive to some given a very large purchaser of bonds may be expected to drive
yields lower. However, we believe that historically, the market priced in the stimulative impact
of quantitative easing on the economy, which actually boosted interest rates during periods of
quantitative easing.
•
During both the tapering of 2014 (when the Fed’s balance sheet grew at a slower pace) and when
quantitative tightening occurred in 2018 and 2019 (when the Fed’s balance sheet declined),
interest rates trended lower as the market priced in slower economic growth.
•
Given that history suggests that interest rates may decline during the current tapering, we
believe investors’ fear of rising rates may be alleviated i.e. concern about higher interest rates
lowering the present values of future earnings may be misplaced. Therefore, lower interest rates
may potentially support that equities and stocks could fare well as they did during the previous
tapering and quantitate tightening periods.
Should You Fear the Taper?
With the Federal Reserve currently tapering its quantitative easing, a look at history may shed
light on the impact of the change on financial markets, including interest rates and stocks.
0%
1%
2%
3%
4%
5%
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
10-Year
Treasury Yield
S&P 500
0
1000
2000
3000
4000
5000
Federal Reserve Balance Sheet Trends and the
Impact on Financial Markets
Source: FactSet and Alger.
Quantitative
Tapering
Quantitative
Tightening
Quantitative Easing
Fred Alger & Company, LLC
100 Pearl Street, New York, NY 10004 / www.alger.com
800.305.8547
(Retail)
/ 800.223.3810
(Institutional)
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The S&P 500 is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the U.S.
Quantitative easing is the expansion of the Federal Reserve’s balance sheet.
Quantitative tapering is the reduction of the Federal Reserve’s balance sheet expansion.
Quantitative tightening is the reduction of the Federal Reserve’s balance sheet.
The views expressed are the views of Fred Alger Management, LLC as of December 2021. These views are subject to change at any time and may not represent the views of
all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by Fred
Alger Management, LLC. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund and ETF shares.
Risk Disclosure: Investing in the stock market involves certain risks, including the potential loss of principal.
Growth stocks may be more volatile than other stocks
as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global
events such as war, acts of terrorism, the spread of infectious illness such as COVID-19 or other public health issues, recessions, or other events could have a significant
impact on investments.
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