E Tuesday Talk: The Old Slide And Glide

On Monday both the yields for 10 year and 30 year US Treasuries slid slightly from last week's highs. Tech stocks responded by gliding higher. The S&P 500 closed yesterday at 3,941, up 0.7% and edging ever closer to 4,000. The Dow closed at 32,731, up 0.32% while the Nasdaq closed at 13,378, up a whopping 1.23%. Currently, futures for all three indices are trading slightly in the red.

Stock Exchange, Bull, Bear, Finance

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The Fed has stated loud and clear that it is not going to raise rates, but the markets are skeptical. In their article Most Had A Financially Good 2020?, the Staff  at TalkMarkets contributor Upfina takes a look at this phenomenon as well as the effects of the 2020 stimulus programs on the economy thus far.

"We suggested the market might come to understand the Fed’s new average inflation targeting policy following its March meeting. However, that hasn’t fully happened yet. The Fed’s raised GDP and inflation outlook didn’t change its zero percent interest rate policy. It still doesn’t expect to hike rates through 2023. As you can see from the chart below, the market is still expecting more rate hikes than the Fed is guiding for. If the market was an FOMC member, it would be the most hawkish member.

Even the market’s long-run rate is higher than the Fed’s midpoint. It might take longer for the market to realize that the Fed isn’t going to hike anytime soon. Many traders believe the Fed will be forced to hike by the market. That generally doesn’t happen. The market can force the Fed to cut rates by cratering, but it can’t force the Fed to hike rates. The only thing that can force the Fed to hike is spiking inflation."

And on the effect of stimulus programs...

"If someone would have told you 2 years ago that in 2020 there would be a pandemic catalyzed recession, yet everyone’s net worth would rise, you wouldn’t have believed them. The scale of the fiscal and monetary stimulus following the pandemic is unparalleled in the past few decades. Wealth was transferred to Americans at the expense of the government and the Fed.

As you can see from the chart below, the top 1% of net worth gained $4 trillion last year. The bottom 50% gained $470 billion. The top 1% benefited from the roaring housing and stock markets. Almost every asset has done well since March 2020. The bottom 50% was helped by the transfer payments."

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William K. 4 weeks ago Member's comment

Well written and informative, and interesting beside. And it is becoming more and more obvious that the federal reserve is either a bunch of doddering old fools or a team of arch- villians bent on destruction to benefit their "friends" in that top 1%, knowing exactly what damage they are causing.

And the worst part is that the course is set and any rescue is unlikely, since Superman has left the area.

David Marshall 4 weeks ago Contributor's comment

Thank you for the comments. As for Superman, can't hurt to keep an eye on the sky...

William K. 4 weeks ago Member's comment

One more thought is that it is not that"bottom 50% that are now investing, but mostly that middle 50%. The bottom quarter of the population still does not have enough to be able to invest. The lucky one have upgraded from "Broke" to Poor.