Quarterly earnings reports from many big companies and other economic data suggest that any economic recovery is at best puny. Inflation is a little higher but it is within the Fed's 2% target. So what's an investor to conclude from all this? Don't panic, and if it makes you feel better, sell some winners, cut your losers or tighten your stop losses. Remember if the stock market corrects another 7% from Friday's levels, it would still be up 8% for the year. Even a 10% correction would most likely be a great buying opportunity for investors waiting for a substantial market dip. Questions abound about whether the Fed will decrease its bond buying may be partially answered when the Fed releases FOMC minutes, although the question remains about who the next Fed chairman will be and whether that person will change the Fed's policies. What the Fed will do to carefully reduce its monthly massive bond purchases is a source of angst. Yet there are some comforting cluess.
Last Thursday, for instance, James Bullard, president of the Federal Reserve Bank of St. Louis, said he hasn't decided if the Fed should start to slow down its bond-buying efforts next month. Bullard's comments were the first from an FOMC member to drop hints on the approach the Fed may take when it does begin to wind down its $85 billion-a-month bond-buying spree. "A larger move would be interpreted as a faster pace reduction," Bullard said. To that, I sarcastically commented, "No clue, Sherlock!" But his next comment was more encouraging: "A smaller move would be considered a more hedged bet, a slower rate of reduction in purchases." Those are the key words that suggest the Fed will find a way to wind down its bond-buying program slowly in a measured way that's acceptable to investors. Fed Chairman Ben Bernanke did say in June that the Fed may begin to wind down the program later this year, but only if the economy recovers. Bullard's sparse comments suggest that a compromise could be in the making in which the Fed tapers down the bond-buying program the same way an expert keeps a ticking bomb from detonating.... very slowly and carefully.
Bullard said in essence that the first move's size will send an important signal to the markets about how the Fed would proceed. Slowly and carefully makes more sense in case economic data aren't as positive as some have spun. The markets hate uncertainty, and I'm fairly confident the Fed doesn't want to douse both the stock and housing markets by taking its foot off the bond-buying pedal too much, too fast. Disclosure: At the time of publication, the author is long Toll Brothers.Follow @m8a2r1This article was written by an independent contributor, separate from TheStreet's regular news coverage. .