Indices across the board sold off today, making it the 5th session in decline as many investors and traders take high valuations as a good time to take profits.
We have seen Stocks rally in an environment where money is cheap, 1 Trillion dollars of fiscal policy for the United States is not enough, and where the Federal Reserve is buying back 120 Billion Dollars’ worth of bonds every month. Pair this influx of liquidity with many investors and traders being able to save due to lockdowns across the world, and you have yourself a buoyant asset market. And it seems like we will be living in this environment for the foreseeable future.
Chairman of the Federal Reserve Jerome Powell signaled that it would continue to keep monetary policy loose and their bond buyback scheme consistent. With that said, he signals a positive outlook for the U.S economy in 2021. A question on whether rising treasury yields signals an improving economy, Powell replied, “In a way, it’s a statement of confidence on the part of the market that we will have a robust and ultimately complete recovery.” This is interesting as an optimistic viewpoint from the Fed may signal that they may tamper accommodative policies in the near term
However, some analysts are wary about the Fed portraying too much optimism. Steve Friedman, senior macroeconomist at MacKay Shields, stated that “We’re not out of the woods yet when it comes to the virus, and the economy also remains quite far from a full recovery.”
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