What's going on?

All eyes are turning to the US Federal Reserve (the Fed) ahead of its conference on Friday, so let�s hope it remembers to imagine the audience in their undies.

What does this mean?

Most investors are headed into this update expecting the Fed to hint at a slowdown in its bond-buying, before it officially rolls out the �tapering� at the end of 2021 (tweet this). And they probably won�t change their minds as long as the Fed sticks to the script: that, on the one hand, US job growth is looking strong, and, on the other, the fast-spreading Delta variant still poses a risk to economic growth. Then again, Goldman Sachs reckons there�s a 20% chance that the US economy won�t grow as quickly as expected in the next few months. And if the Fed shares that skepticism, it might end up delaying the taper � or even hints of the taper � until next year.

Why should I care?

For markets: Investors are trying to jump the gun.

There�s a simple reason investors are so interested in the Fed�s plans: the fewer bonds it buys, the less demand there�ll be for bonds overall (all else equal). That would drive down prices and push up yields, which might encourage investors to ditch riskier stocks � not least �growth� stocks, whose earnings growth becomes less valuable relative to other assets as bond yields climb. So rather than wait for stocks to take a tumble, investors want to spot any early clues and adjust their portfolios ahead of time.

For you personally: History rhymes.

The last taper-driven selloff was in 2013, when US stocks initially fell 5%. But you might�ve been okay if you�d invested in the right stocks: those with high dividend yields, for example, or those with strong balance sheets. Growth stocks fall into the latter bracket, so even if the prospect of a taper is damaging in the near term, they actually stand to bounce back quickly and outperform in the long run.