This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Global Macro: The Fed Reduces Uncertainty

NEW YORK (TheStreet) -- The Federal Reserve's decision to cut its monthly bond-buying program by $10 billion has surprisingly led equities to record highs.

Investors had believed that a cut in stimulus would cause to stocks to fall. The belief was that higher interest rates caused by less stimulus would reduce lending and dry up excess liquidity. That excess liquidity was the very reason equities were able to achieve record highs in the first place.

Investors, however, interpreted the news from the Fed as a positive review of the economy and a sign of more transparency. Tapering now, as opposed to some point in 2014, added clarity to an opaque wall with analysts' expectations on one side and actual Fed policy on the other.

All this year, investors had tried to predict when and if tapering would begin, leading to wild price swings and elevated volatility. A pattern developed where analysts predicted the chances the Fed would cut its bond purchases. The constantly changing predictions caused more market volatility. Then after the Fed made its announcements, traders went mad attempting to digest what the policy meant for future prices.

This week's meeting finally put to rest the $85 billion question of when and if the Fed was going to reduce stimulus. Fed Chairman Ben Bernanke stated that the rewards of stimulus becomes less favorable when a central bank's balance sheet grows too large.

Fed officials tried to give more clarity about their plans for the future, which led to an spike higher in equities to record levels on Wednesday. Meanwhile, as expected, SPDR Gold Shares  (GLD) sold off for two reasons.

First is due to the inverse relationship between interest rates and commodities. Gold is priced in U.S. dollars and is used to hedge inflation when the dollar value falls. It became less desirable to investors when the Fed cut stimulus, which caused the dollar's value to increase.

The second, and the more telling aspect, is that more transparency about policy has reduced investor anxiety. The constant guessing game over the past few months of when and how the Fed would taper dominated investing premises.

Fundamental influences such as earnings and valuation ratios were neglected. Now with the beginning of tapering, traders can focus more on fundamentals.

GLD ChartGLD data by YCharts

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: GLD 

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs