It’s very important we balance the near-term ‘optimism’ in equities with what we see with leading macro indicators such as gold, the US dollar index, treasury bonds and credit default swap spreads.
For example, whilst bond investors are typically early, over the long-run they are generally right.
Markets are hopeful a possible fiscal relief deal may get passed before the election. I remain less optimistic. Irrespective – the fiscal aid provided so far is not getting to where it is needed most; i.e. small business. So far, the government’s loan plan has been woefully executed…
For anyone who thinks the real economy is in ‘good’ shape… then you are at odds with the Federal Reserve.
The world’s largest central bank told us today that interest rates are to stay at zero in nominal terms (negative in real terms) at least through 2023.
My guess what at least through 2022…. not 2023.
This week we heard that US inflation appears to be picking up, but only in a few parts of the economy.
For example, the Labor Department said its consumer price index (CPI) rose 0.4% in August, topping a Reuters estimate of a 0.3% gain.
The so-called core CPI, which strips out volatile food and energy prices, also climbed 0.4% to build on a 0.6% surge in July.
The Fed is tightening its gaze on inflation…
Not happy with sub 2% for 14+ years – today Chairman Jay Powell unveiled a new framework – unveiling a formal policy of “average inflation targeting”
Put another way – the Fed will let inflation run above its 2% target for “some time” – after struggling to achieve that level for over a decade
The world’s largest central bank concluded its two-day meeting yesterday and held interest rates steady. But it wasn’t interest rates the market was interested in…. it knows they are staying at zero for at least another 12 months (and likely longer).
Today’s intra-day high was 3395 – just 1 point above the previous intra-day high of 3394. And whilst some are cheering the 55% rebound from the March – many aren’t.
Today President Trump issued a new executive order banning popular Chinese apps “WeChat” and “TikTok” (effective in 45 days). Should the market be worried? No… it actually presents an opportunity.
The “great divergence” continues… as stocks inched closer to their all-time highs… only ~2% away. Meanwhile… the real economy heads in the opposite direction. Today we learned ~1.2M more US people submitted initial unemployment claims. That makes it 20 straight weeks where these initial weekly claims have exceeded 1.0M.
It’s remarkable to think that we’re now ~2.6% from the market’s all-time high. It was only 4 months ago the market lost 35% in just 3 weeks. Thanks largely to the Fed (and their peers) – it seems there is no stopping this market – no matter how bad the data.
