QE3 More Likely On Borrowed Time Than Not, Some People Say

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Sure, we've heard it before, but this time 31 of 47 people who bothered to answer their phone/e-mail are pretty sure that next week's Fed meeting will be the Fed meeting we've all been waiting and waiting and waiting for.

A majority of economists surveyed by The Wall Street Journal—66% of the 47 who responded—expect the Federal Reserve to say at next week's policy meeting that it will begin cutting back its bond purchases, a widely anticipated milestone in a period of extraordinary monetary policy….

Though the majority of the economists expect the announcement of the reduction in the pace of purchases to come next week, a third of the respondents don't expect tapering to be unveiled in September. That is less of a consensus than usually precedes Fed moves and suggests that at least some market participants will be surprised if the central bank acts next week.

Does it matter? No, according to Goldman Sachs! The only thing that matters is growth, and there'll be plenty of that.

While a rolling back of Federal Reserve stimulus and budget debates in Congress will pose “moderate risk” to stocks, wrote David Kostin in a note this morning, “a pick-up in U.S. growth will outweigh near-term policy” concerns.

He recommends investors “use any equity weakness around those events as an opportunity to add exposure.”

That would be a very bad idea, one (and only one) analyst at a lesser bank says, because, as it turns out, the taper does matter.

Gina Martin Adams is out on a limb. The strategist at Wells Fargo Securities is the only stock-market guru at a major Wall Street firm calling for U.S. shares to slump.

She is sticking with a call made earlier this year that the S&P 500-stock index will end 2013 at 1440. That would mean a 14% decline over the next 31/2 months, all but wiping out this year's gains. Ms. Adams reasons that once the Federal Reserve begins to pull back on its stimulus efforts, the stock market will lose a crucial source of support amid soft earnings growth….

Over the last two years, Ms. Adams's S&P 500 calls have been close to the mark. In late 2011, she predicted the index would rise to end 2012 at 1360, just 2.9% below its actual finishing mark. In 2011, she originally expected a rise to 1390, but cut her projection for the stock market's performance to 1250 in September, close to its year-end mark of 1258. But she was too bearish in 2010, when she expected the S&P 500 to finish between 980 and 1150. Instead it finished at 1258.

Economists Expect Tapering Announcement Next Week [WSJ]
Fed Taper? Debt Ceiling? No Worries, Says Goldman Sachs [WSJ Money Beat blog]
At Wells Fargo, a Bear Among Bulls [WSJ]

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