Nasdaq And 3 Potential Pitfalls: Weekly Nifty 9

  1. Finom Group is of the opinion that the corporate tax hike would not likely gain traction in excess of a rise to 25%. Additionally, keep in mind that the statutory tax rate and effective tax rate usually vary by about 5 percentage points. Corporations generally pay the lower, effective tax rate, which largely goes unrecognized by the financial media.
  • The risk of stickier and sustained inflationary pressures as opposed to the Fed’s expectations of transitory price increases: As the St. Louis Fed advised in December 2020, Americans may have to “prepare themselves for a temporary burst of inflation.” Indeed, prepare they should—inflation is back, but for how long and at what level? In March, the U.S. consumer price index (CPI) was 2.6% higher than a year earlier, the biggest increase since November 2009. Not to worry, according to the consensus, due to the “base effects” or the fact that in the spring of 2020, consumer prices fell for three consecutive months as the pandemic shut down the U.S. economy. A year later, and following massive dollops of fiscal and monetary stimulus, the YoY comparisons are trending ahead of the Fed’s annual inflation target of 2%, stoking fears among some investors and prominent economists that the U.S. economy is likely set to overheat. Adding fuel to the fire, in March, the producer price index (PPI) for final demand rose to 4.2%, a figure well above consensus expectations and the biggest 12-month gain in almost a decade

  • A Taper Tantrum: If the Fed adjusts policy prior to investor expectations of any adjustment it won’t be pretty. I’m not saying a rise in rates during a solid economic growth phase isn’t warranted, but the market is NOT YET expecting that shift.  The consistent stance echoed by the Federal Reserve that keeps rates at these levels until 2023 is ingrained in the minds of market participants.  The equity market has traditionally reacted negatively to such a move, this time will likely prove no different.  The earliest shift we potentially see is primarily in the Fed’s messaging about QE and possible at the Jackson Hole Summit in August. This is only more probable if in fact inflation proves stickier or too robust.

 

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