Update June 2020
Financial Market Update
The stock market continues marching higher and higher leaving many investors perplexed as to why. After all, consumer confidence is plummeting, corporate earnings are projected to collapse 30% or more in 2020, and unemployment is forecast to rise above 15% over the next two quarters. Couple this with an escalation of geopolitical pressures abroad and racial tensions here at home and you seemingly have a perfect storm for financial market Armageddon. So, given all this bad news what could possibly be driving stock prices up? Enter the Federal Reserve.
We normally like to keep these updates void of too much economic theory, but to explain what is going on we are going to provide some context of what appears to be driving financial markets at the present time. While we are all aware of the economic difficulty so many Americans are currently facing, the response by the Federal Reserve has investors confident a prolonged downturn will not happen. David Rosenberg, of Rosenberg Research, summed it up perfectly in a recent research report to clients, “… statistically speaking, the correlation between the equity market, and the Fed balance sheet has now crossed above 90% over this interval (the stock market bottom until now), even greater than the already-intense relationship during the 2009-2013 era of ever-expansive QE (quantitative easing). The correlation between the S&P 500 and the real economy over this interval is close to zero.”
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