The big question is: What happens then?
There are two schools of thought. The first is that most of the damage was done in May and the market has now positioned itself to absorb the impact when the cutback finally begins.
The other is that we should expect a significant correction in stock prices when the Fed announces the start of tapering. That view is strengthened by the big run-ups the U.S. indexes have enjoyed this year, with the Dow and the S&P 500 hitting all-time highs. Tapering could be the catalyst that triggers the pullback that many analysts believe is inevitable anyway.
The bottom line is that no one knows for sure how the markets will react when the Fed eventually pulls the plug. We’re in uncharted territory.
If you’re sitting on some big stock profits and you’re the nervous type, you might want to consider cashing in some of your chips now, just in case things go badly. But look at the tax consequences first — if the money is in a non-registered account the Canada Revenue Agency will want a share of your capital gains.
On the bright side, the start of tapering will be a signal that the U.S. economy is finally back on a firm growth track. That has to be good news for everyone.