By Mitchell Anthony
September 23, 2020
The Markets Recent Volatility
The equity markets have been going through a bit of a correction over the last two weeks. This is the first correction since the February-March 2020 correction that occurred due to the coronavirus outbreak and the shutdown of the global economy. After this correction the markets ran wild to the upside after the central bank and the US Congress essentially stated that they would monetize their way out of this economic problem. Valuations soared in industries and names that were highly leveraged to the stay at home environment that ensued and continues today. Cyclical names have also rebounded but the performance has been far different as these cyclical names are not leveraging the current environment but in fact impacted by the current environment. The rally in both has now paused as investors assess the likelihood of a second stimulus package from the US Congress. The stimulus package has stalled because of a few areas within the Democratic demands that the Republicans have not been able to stomach. Most notably bailouts for states and local governments that acted irresponsibly for many many years. The Republicans just want less stimulus for consumers and small businesses than the Democrats want. The Republicans are hung up on principle for the time being but likely will fold when they realize that maintaining control of the presidency and the Senate are more important than blocking stimulus now that will just happen later if they lose control. Investors obviously worry and as a result stocks have corrected 10% or more from their highs recently. This correction will likely end soon if it hasn’t already as the economy continues to stay on a path of recovery and interest rates remain at zero and the fact is there is nowhere else to put your money besides risk oriented investment areas like stocks or real estate.Read more
By Mitchell Anthony
September 1, 2020
The Feds New Posture
Chairman Powell spoke at the Jackson Hole Economic Pow Wow last week about the Fed’s role in controlling inflation and made it clear to investors and financial markets that the Fed is prepared to let inflation rise over the intermediate term in order to achieve a full and complete economic recovery. The Fed believes inflation has been down and out for too long and in fact now recognizes that it acted in error in 2017 by raising rates aggressively when inflation began to ebb higher. The Fed’s actions slowed the economy then and now Covid 19 has slowed the economy even further causing historically low levels of inflation that the Fed is unhappy with currently. The Fed believes higher levels of inflation are consistent with a strong economy. The Fed believes that the last few years of ultra-low inflation must be accounted for when assessing inflation that is on the horizon. The Fed has been to vigilant in fighting inflation and so have other central banks around the world and as a result the globe has been mirrored in a period of ultra-slow growth with deflation in some areas. Just how serious is the Fed about letting inflation rise and to what extent will the Fed let inflation rise? This statement is a bit unusual from the central bank chairman we have grown to know. Comments about letting inflation rise would normally spark a rally in gold and other inflation hedges, however gold did not react significantly to the Fed statements nor did other commodity assets. Investors are becoming astute at reading the Fed and this time recognized that the Fed is not acting in a reckless manner and really just see him more aware of the need to allow this economy to progress. Stocks however did react and have pushed higher with comfort of a continuation of the current accommodative rate environment.Read more
