The SPDR S&P 500 ETF Trust rallied once again on Thursday, and investors are clearly feeling optimistic about the economy’s near-term outlook after Democrats successfully gained control of the Senate earlier this week.
While a Democratic “blue wave” in Washington is certainly bullish for the market in several key ways, Commonwealth Financial Network chief investment officer Brad McMillan said Wednesday there are both pros and cons to Democrats running the show.
Blue Wave Pros: The biggest near-term pro for investors is that Democrats now have a clear path to more aggressive stimulus measures, including the possibility of $2,000 stimulus checks. McMillan said the federal government would likely also provide much-needed help for state and municipal governments.
In the longer term, McMillan said investors can expect increased infrastructure spending and more constructive trade policy following four years of isolationist policies from the Trump administration.
Blue Wave Cons: While Democratic policies could serve as a major tailwind for many companies, the impact of the blue wave is not all positive. CLICK for complete article
We came across the following bullet points from a Seeking Alpha article titled- The Fed is not Juicing the Stock Market.
- It makes for a great headline, but the Fed is not the cause of this rally.
- Every dollar the Fed has pumped into the economy is spoken for, and it is not in equities.
- The truth is a lot more boring and scary than the conspiracy theory.
After explaining how the Fed is not culpable for rising stock prices, the author ends the article with the following challenge: “So please, I invite anyone to explain to me, like I was a 5-year-old, what exactly is the mechanism that explains “the Fed is juicing the market,” when we know exactly where all the Fed’s money is, and we know that it isn’t in the market.”
We are always up for a challenge.
The following article describes four ways in which the Fed juices the stock market.
Draining the Asset Pool
The Fed conducts monetary policy by governing the Fed Funds Rate. To do this, they buy and sell Treasury securities via open market operations. When the Fed wants to lower rates, they buy Treasury debt. In doing so, they reduce the supply of investible debt, making remaining debt more expensive (lower yield). They most often buy or sell short term Treasury Bills to affect the short term Fed Funds rate. Open market operations also add or drain the banking system’s liquidity to help further hit their target.
More recently, with Fed Funds at zero percent, they have conducted QE or large-scale asset purchases. These operations help manipulate rates across the maturity curve and not just Fed Funds. QE, as with traditional open market operations, reduces supply, boosts prices, and lowers yields.
With knowledge of the Fed’s modus operandi, let’s go swimming…CLICK for complete article
In a confusing move for everybody, the New York Stock Exchange (NYSE) has scrapped plans to delist three Chinese companies it announced just four days earlier.
Just last week, the NYSE had said it had determined that the three companies–China Mobile, China Telecom and China Unicom Hong Kong– were “no longer suitable for listing,” and cited President Trump executive order from last November when declared a national emergency due to a threat posed by China’s military-industrial complex.
According to the order, starting in November this year, U.S. investors are banned from buying shares of companies that Washington alleges are owned or controlled by the Chinese military.
Yet, after “further consultation with relevant regulatory authorities,” the exchange said in the statement late Monday it would no longer go ahead with plans to remove three companies from its index, scheduled for January 11th.
In a brief statement announcing its reversal, the exchange said that the companies would continue to be listed and traded on the NYSE “at this time.”
Even though no official reason was provided for the decision, some media reported that the exchange was influenced by the U.S. Treasury’s desire to reverse the ruling.
Such speculation roiled hardliners who have been targeting China…CLICK for complete article
Stop me if you’ve heard this one before: the stock market looks pretty frothy going into the new year, and it’s coming in hot, perhaps too hot. Given the rally we’ve had since those depths of March, it definitely feels as though we’re overdue for another vicious market correction in excess of 10%.
Still, there are no guarantees that the froth will be cut off this market anytime soon. Although the folks at CFRA did recently warn investors to brace themselves, as they thought the stock market was “vulnerable to a pullback” over the near-term. CFRA points out that recovery expectations are a tad on the high side, which could set the stage for a first-quarter pullback. CLICK for complete article
In the later stages of a bull market advance, the financial media and Wall Street analysts start seeking out rationalizations to support their bullish views. One common refrain is “there are trillions of dollars in cash sitting on the sidelines just waiting to come into the market.”
For example, Barron’s recently penned the following:
“There is record amounts of cash sitting in checking accounts of American households—and for optimistic investors, it’s just one more reason the stock market should keep pushing higher.
Yahoo! Finance also jumped on the claim:
“It should also come as no surprise that there’s never been so much cash sitting on the sidelines — nearly $5 trillion, as a matter of fact. This is significantly above the record $3.8 trillion in cash set back in January 2009 during the financial crisis!”
McKinsey & Co also published the following graphic.
See. There are just tons of “cash on the sidelines” waiting to flow into the market.
Except there isn’t. CLICK for complete article