The Federal Reserve has decided to run-off $3.7 trillion bonds and mortgage securities that it gathered during the financial crisis. According to MarketWatch, the Federal Reserve will reduce its balance sheet in October. Such a step will affect how the Fed will carry the future’s monetary policy. As of now, the economy is strong enough to cope with a tight policy position.

But what does a small balance sheet mean? It allows the Fed to revert back to its practice of targeting the federal funds rate. Small adjustments in reserves made from the central bank would fine-tune the federal funds rate. A large funds rate would mean the Federal Reserve would need to accept cash from banks and money-market funds overnight for a security to set a floor for rates.

At this week’s Fed meeting, Yellen emphasized that normalizing the balance sheet will be gradual to avoid disrupting the market. Bonds and currency markets will go through the most volatility if there are Fed revelations. This week’s meeting will also give the Fed the opportunity to have their say on the state of inflation in the world.

Sectors: As the market recovered from hurricane fallout, the leading Sector Benchmark ETFs exhibited mostly positive shifts over the past week. Telecom, Energy, and Materials rose, and Utilities fell significantly. Momentum scores of most sectors increased for the week. The only exceptions were Health Care and Utilities. Energy shot up incredibly, coming out of the red. The spread between the highest and lowest decreased from 49 to 28. In terms of ranking organization, there appears to be no general trend between cyclicals and defensive sectors, continuing last week’s trend. Technology, which stayed the same, sat above Utilities. Energy improved significantly from last week, jumping from -1 to 16. An overall increase in momentum for most sectors suggests the potential for a market increase.

Factors: The leading Factor Benchmark ETFs had mostly positive results for the week. Momentum and Growth remain in the lead, though Momentum slightly edged out Growth. Value and Dividend Growth sit at the bottom. Risk-off factors such as Quality, Yield, and Low Volatility were dispersed. Quality was toward the top, Yield was at the center, and Low Volatility was at the bottom. Overall momentum for all factors increased once more last week, with the average momentum score changing from 10.6 to 15.5. The spread increased from 15 to 17.

Global: Rankings in the leading Global Benchmark ETFs were mixed last week. Latin America and China remain at the top of the rankings, with China having a slight lead. Most momentum scores have risen slightly for the week. Developed and developing countries both climbed, with USA increasing from 12 to 15 and China increasing from 46 to 52. Emerging Markets increased slightly, from 31 to 32. The average momentum score globally increased from 25.1 to 25.8. USA and Japan were at the bottom in terms of absolute rank. Developed markets have mostly risen for the week: the UK jumped from 1 to 17 and Japan increased from 13 to 14.

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