.#Markets keep pivoting off of a great deal of noise running through the #media, but as we’ve indicated for some time, it’s worth taking a step back to consider the power behind #monetary rescue programs and their influences.
Critics of the efficacy of quantitative easing (#QE) often contend that asset purchase proceeds remain stranded in the #financial#economy…
but the transfer of #capital to #MainStreet actors; amounts to the first direct payment of money creation from the #Fed into the real #economy since WW2, catalyzing broad #money and incremental #NGDP growth, and Chair Powell also indicated those purchases won’t run off.
As we’ve argued many times in the past, the #CashFlows generated by today’s #economy are accruing to fewer and fewer corporate players, which is why it’s not surprising that the top 5 companies in the $SPX by market cap comprise nearly 21% of the index total.
And contrary to the many commentaries speculating on the hypothetical differences between pre- and post- #Covid#economies, we’re fairly certain that this is a trend that’s likely to accelerate. Especially when the @Nasdaq just added the equivalent of two Russell 2000s this year!
Revenues, cash flows and ultimately #market#capital flows are in motion at an astounding speed, as #investors attempt to distinguish between winners/losers in sectors, industries and individual companies: that amazing structural evolution is key to #investment success today.
Though it hardly needs to be said, there are few historical precedents for us to look to that are truly comparable to recent #Fed policy moves. The 2008/09 #GFC is an obvious analogue, but the pace and extent of #policy moves is even eclipsing that.
Another potential point of reference is the Second World War when, following Pearl Harbor, the @federalreserve pledged that it would be: “prepared to use its powers to assure at all times an ample supply of funds for financing the war effort.”
That stance, in effect, left the @federalreserve’s System Open Market Account’s (#SOMA) size at the mercy of #Congress and the Administration, which is a clear example of the #Fed doing “whatever it takes” to prevent unwanted increases in #yields to fund #fiscal crisis response.
Today’s #employment report was considerably stronger than anticipated, allowing for manufacturing-sector strike activity and with the substantial upward revisions to #job numbers over the past two months. Yet, clearly, employment growth is slowing some.
Still, the demand for #labor exceeds historically moderate levels of new entrants into the workforce, which has helped to bring the #unemployment rate down persistently over the past 10 years, to 3.56% today.
The question now is whether a moderating #employment cycle, alongside of an #economy faced with great uncertainty over the past few months, will see some bottoming and improvement from here, or not?
As expected, the #FOMC cut policy rates a quarter-point, Chair #Powell referenced the Committee’s reliance on data dependency and provided a nuanced view of #economic conditions. Still, just because all that was “expected,” doesn’t take away from the fact it was also good policy.
Indeed, today’s announcement represents an important moment for the #Fed, in which policy rates were moved to appropriate levels, alongside significant liquidity provision, which is precisely the right combination in our view: this is a big positive for #markets.
Specifically, we think the #Fed moved to the lower end of what we believe should be the equilibrium rate of interest in an #economy that’s facing aging demographic trends, and which benefits from still positive interest rates.