Tags: Fed | stocks | Jubak | stimulus

MSN Money's Jim Jubak: Don't Fight the Fed, Buy Stocks

Tuesday, 22 Oct 2013 03:57 PM

By John Morgan

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Investors who think the Federal Reserve is about to run out of steam with its ultra-loose monetary policy are on the wrong side of the market, according to MSN Money columnist Jim Jubak.

“The Fed is no more out of ammo than Clint Eastwood in his prime,” Jubak wrote.

He noted the Fed, the People’s Bank of China, the Bank of Japan, the European Central Bank and other central banks around the globe are still committed to stimulus to spark GDP growth.

And with world economic activity still relatively weak and Washington lawmakers prepping for another round of budget confrontations that “may make ‘Riot in Cell Block 11’ look like a shining beacon of good faith,” Jubak said it’s a good bet tapering is not a likely scenario.

“But I really dislike markets where the direction of macro trends is up for grabs; where traders and investors are trying to bet that they can guess the results of an essentially binary decision, and where the results of that binary decision, in the latest case, a taper/no taper decision by the Federal Reserve, will drive most stock prices in one direction or another, overwhelming the fundamentals of the vast majority of individual stocks.”

The consensus among economists surveyed by Bloomberg is that the Fed will not start cutting back its $85 billion monthly bond purchases, which have put a floor under the economy, until at least March.

Despite his reservations, Jubak is not one to fight the central bank tide. He suggested investors re-invest available cash into the stock market now.

“What you do now counts, and I don’t think you should be even 25 percent in cash over the next six weeks,” he advised in his MSN column. “Put some money to work.”

Jubak suggested investors put money into U.S. stocks, and that dividend stocks should do well, but that financials, retail and consumer durable equities should be avoided. He also recommends the Japanese stock market and certain emerging markets such as Mexico.

CNBC reported the latest government job numbers, which showed only lukewarm growth, increasing the odds the Fed will stay the course with its current level of stimulus.

MarketWatch columnist Rex Nutting agreed the Fed has little choice but to keep priming the economy at current levels.

“With all of the miscommunication between the Fed and the markets about the taper, the last thing the Fed wants to do is reduce the amount of bonds it’s buying only to change its mind later,” Nutting predicted. “The Fed needs to be certain that the economy is really improving, and it won’t be able to make that call yet.”

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