The Fed is setting the stage to start tapering, i.e. reducing its bond-buying and ultimately ending the program. The Fed must feel that the economy needs no more help from them given the spending by Uncle Sam. On that they're right, but for now, we have to get past the Delta variant's short-term impact on demand and with it the outlook for profits and stock prices. Add in the timing of the first-rate increase -- sooner than earlier thought -- and you can see why investors might be cautious. 

The last time investors reacted in what was called a "taper tantrum" stocks actually did well after the initial knee-jerk selling even though interest rates rose. This time the inevitable tapering is already reflected in prices since Fed chief Powell has announced that tapering will likely begin this year.

Given the economy's strength and the recent employment reports, there is scant reason for the Fed to continue to buy $120 billion month after month. So after the Fed reduces (okay, tapers) its purchases and ultimately ends the buying spree the next step would be to raise rates. Stock investors shouldn't fear rising rates. Rates won't rise enough to make bonds competitive with stocks, many of which (utilities, pipelines, drugs, etc.) will still yield more than bonds.

There remains one powerful offset to the real and potential short-term negatives. Trillions of dollars are on the sidelines waiting for an opportunity to buy stocks and maybe to some extent bonds. More will go to the former than the latter due to paltry bond yields. Good. Whenever a little selling appears, whether triggered by news or simply a case of profit-taking, investors will appear and "buy the dip," as they say. Doing so has been smart for years, which is why the S&P 500 and Nasdaq are setting new highs as I type. 

We are entering a seasonally weak period for the stock market to be followed by a usually strong fourth quarter. I like what I like, especially stocks with reasonable valuations and rising dividends (pipelines, drugs, utilities, some banks and financials, energy companies). There are better days ahead.