Will the FOMC Action Have a Lasting Impact?

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The markets initial reaction to the FOMC decision was clear, but MoneyShow's Jim Jubak says investors now must try and decide whether it will have a lasting impact.

For the week ahead, the big question is going to be what the market reaction is in slightly longer term to the fed's decision not to begin a taper on September 18. The immediate reaction was pretty clear. The market was surprised. Stocks rally S&P hit an all-time high, bond yields went down, as bond prices went up, so bonds that were close to the ten-year yield before this, like on September 6 or so, was all the way up to 3.05. Before this, we were down to 2.87, or even lower than that. A big move away from the 3% danger zone. The dollar is weaker today, gold is up. This is the immediate reaction.

The question is going forward, "What happens?" A lot of that depends on how quickly people go from being kind of elated that the fed was going to continue to pump the whole $85,000,000,000 into the market that they've been pumping in each month, to a situation where people start to worry about the US budget, and the deadlock over that, and the possibility we're going to shut down the government, the battle over the debt ceiling. How quickly do we shift gears? I can make an argument at this point either way, so it's going to be-I mean, I don't know, so I'm telling you that either we can go to a situation where people say, "Oh S&P all-time high, so I'm going to take profits," and I think that would be one legitimate reaction to this sort of fiscal uncertainty coming up, or you can say, "Oh, okay, so we're off and running. I really don't believe that those people in congress are really as dumb as they want, or that the shutdown is going to be as meaningful as it could be, in just a few days. It's really a bump and I'm going to go with the cash."

I think those are our two possibilities at this point. It's very hard, at this point, to guess. My basic feeling, in terms of risk-reward, is I'd probably take profits here because we are at an all-time high and I really don't like the risk of fiscal action in congress, but I can't guarantee us the way this market is going to go. I think that's the way the balance of risk-reward puts you, but as we say, we'll see in the week ahead.

This is Jim Jubak for the Moneyshow.com Video Network.