party on
Jerome Powell may want to take his eyes off the stock market. It makes a mockery of his idea that the financial situation is restrictive enough.
Dow Jones Industrial Average exceeds $40,000 It rose on Thursday after rising about 6% so far this year. It’s up 23% from its recent low in October, before the U.S. Federal Reserve reversed course from raising interest rates.
I remember that time Mr. Powell took a tough stance on the market. Will we return to the Fed’s annual Econopalooza in Jackson, Wyoming in the summer of 2022? The Fed chair insists the central bank will “continue policy until the job is done” and warned there will be pain ahead, saying the risk of halting interest rate hikes prematurely outweighs the risk of monetary policy becoming too restrictive. He said it has exceeded that.
Mr. Powell went on to say that paul volcker, the last time the Fed had to fight very high inflation, it said, “To stem high inflation and begin the process of lowering inflation to low and stable levels, it ultimately took very restrictive monetary policy.” “It required a long period of time.” That was the norm until last spring. ”
“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said in brief remarks at the meeting. “The historical record strongly warns against premature policy relaxation.”
After this speech, the Dow Jones Industrial Average fell 1,000 points. The S&P 500 fell 3.3% and the Nasdaq fell 3.9%. These declines came on top of previous declines that anticipated hawkish speeches. By the end of the year Major stock averages had their worst annual performance since 2008, when the financial system nearly collapsed..
Apparently, the federal funds rate was about 2.3% when Mr. Powell spoke. This is just over half of today’s rate. But monetary policy is not really about current interest rates. Regarding the expected direction of interest rates. So even though interest rates are much higher than they were in the summer of 2022, the market remains convinced (along with Chairman Powell himself) that the Fed’s next action will be a rate cut, and therefore the stance of monetary policy. has definitely been significantly eased.
A recession we’ve never experienced before
From September 2022, Dow is up about 40%the S&P 500 rose 48 percent and the Nasdaq soared 58 percent.
This climb was almost unthinkable just a few years ago. Prophets of doom were everywhere. The consensus on Wall Street was that the Fed’s interest rate hikes would push the economy into recession in 2023. Bloomberg’s economics team at one point raised the probability of a recession in 2023 to 100 percent. It was inevitable!
Traders work on the floor of the New York Stock Exchange on May 16, 2024 in New York City. Stock indexes surged in trading, with the Dow Jones Industrial Average opening near the $40,000 milestone on Thursday. (Spencer Pratt/Getty Images)
Breitbart Business Digest covered the other side of that prediction. We questioned the Fed’s determination to raise interest rates to truly restrictive levels. We can see that Biden’s fiscal profligacy is still fueling excess demand, and excess savings are enabling the consumer spending boom to continue. Unemployment was very low and vacant jobs were plentiful, increasing household incomes and confidence, further boosting consumer demand.So we said There will be no recession.
of course, The much-feared economic downturn never happened. The Fed announced it would slow the pace of rate hikes in early 2023, then halted them in July. Another rate hike has been a possibility for several months, but the market may already be seeing a cap on rates looming. By last winter, it was clear that the Fed was ready to cut rates.
Of course, it’s not all the Fed that’s driving the stock market euphoria. Currently, many investors are expecting Productivity boom driven by artificial intelligence progress. This enthusiasm has particularly benefited the Magnificent Seven, leading technology companies, led by NVIDIA, whose market value has soared to more than $2 trillion after rising 99% since the beginning of the year. Microsoft, not a young company, is up 13.5% this year, boosted by its partnership with OpenAI, pushing its market value to $3 trillion. Meta stock is up 36.63% this year. Amazon rose 22%. Alphabet rose 26%. (It’s worth mentioning that Apple stock is up less than 3% since the beginning of the year, in part because investors aren’t seeing big gains from AI.)
But the recent rally is not limited to technology. It’s extensive. Industrial products rose 10% Year-to-date, it’s up 28% year-over-year. Utility bills have increased 14% so far this year. Materials stocks rose 7%. Daily necessities rose more than 8%. Consumer discretionary stocks have fallen since the beginning of the year, but are still up an astonishing 27% from 12 months ago.
Will there be a crash?
What could go wrong? An invisible specter hanging over the market is the prospect of the Fed raising interest rates again. A resurgence in inflation could force the Fed to return to rate-hike mode, which would almost certainly drive some of the higher valuations we’re seeing now. If the market believes the federal funds rate needs to rise to 7%, will the S&P 500 trade at more than 20x P/E?
But that doesn’t mean a crash is inevitable, much less imminent. As Chairman Powell’s recent speech in Amsterdam made clear, the Fed is far from going back to raising interest rates.It will probably take Months of rising inflation have helped the Fed ease its rate-cutting bias, which means the market is likely to continue rising. Moreover, the labor market shows no signs of serious weakness, consumer spending remains resilient, and there is a good chance that the November election will free the economy from the threat of higher taxes and ever-increasing regulatory burdens.
When the economy and financial markets are described as Goldilocks, everyone always says that eventually the bears will emerge. They discover Goldilocks running amok in their residence and find her sleeping in a bear cub’s bed. But people tend to forget that – at least in the most common versions of fairy tales.goldilocks runs away, run away from all her pranks. After all, it was “just right”.
