The Federal Reserve's tapering of its Covid-era bond purchasing program will not lead to a major sell-off for stocks, according to Barclays. "Even more dramatic shifts in monetary policy have historically not caused a major market reaction," Barclays' Maneesh Deshpande said in a note Tuesday. The firm raised its year-end S & P 500 price target to 4,600, implying 1.4% upside to the index's close on Friday. The benchmark is up about 20% in 2021. Fed Chairman Jerome Powell indicated in August the central bank will likely begin tapering its $120 billion a month bond-buying program before year-end , but said rate hikes are not imminent. But the Fed's 2013 taper of quantitative easing, 2017 balance sheet reduction and unexpected federal funds rate hikes suggest central bank action around tapering should have limited impact on the stock market, according to Barclays. Strong earnings should continue to push the S & P 500 higher, the firm added. FactSet data shows that 87% of S & P 500 companies have posted better-than-expected earnings per share for the second quarter. That's the highest figure since 2008. "We believe the recent strength of EPS surprise will persist in 3Q21/4Q2," Deshpande said. However, elevated valuations and a faster-than-expected pace of tapering could lead to a more significant sell-off, Barclays noted. Stocks linked to the pandemic should benefit from the current Covid environment, Barclays said. The bank added that growth stocks not tied to the economic cycle and quality stocks with positive Covid exposure should outperform the market. —CNBC's Michael Bloom contributed reporting.
The Wall Street sign is seen outside The New York Stock Exchange (NYSE) in New York, February 16, 2021.
Brendan McDermid | Reuters
The Federal Reserve's tapering of its Covid-era bond purchasing program will not lead to a major sell-off for stocks, according to Barclays.