Markets Fret Over Fear of Change in Monetary Policy.
October 5, 2021
by Mitchell Anthony
The relatively steady rise in equity prices that we experienced the last 1 ½ years has shown some signs of stalling over the last month. The S&P 500’s recent peak was on or about August 31. It declined about 4% in the first week of September and then quickly recovered back to its August 31 high by September 22. However, commentary from the feds meeting the third week of September caused fear and investors pushed the market down again to where the S&P 500 is now about 6% below the August 31 high. We saw a similar correction like this in March of this year as well as November of last year. When investors fear the economic cycle is ending they sell stocks and they tend to sell growth stocks first because of their high valuations. As a result technology has underperformed over the last month and value areas like energy, materials, and financials have done better but still have declined over 2%.
Steady economic data combined with accommodative monetary policy got the markets right back on course during these previous corrections. Will this correction have the same outcome? We believe so, however we are carefully watching the inflationary environment as well as the dynamics going on in housing for confirmation of our thesis that this market is being driven by Fed liquidity and expectations for modest earnings growth. We believe the Fed’s liquidity pump will remain on for several more years, combined with a strong consumption theme of housing and business and consumer services. We believe the US economy will ebb and flow with modest to moderate growth. Asset valuations will remain very high as rates stay near Zero.Read more
