2022-01-11 22:08
publication
2022-01-11 22:08
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Following Monday’s successful counterattack, the stock market bulls on Tuesday continued their attack, leading the main indices “north”. Investors were not disturbed by the statements of the head of the Federal Reserve, who spoke about abandoning ultra-loose monetary policy.
You can probably risk a hypothesis that the fate of Tuesday’s session was largely decided on Monday when the US stock market recovered deeply (especially the Nasdaq which went from -2% to + 0.05%). Such a session improved the mood and increased the willingness to “buy the hole”. The famous American BTFD worked again. At least for now.
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The S & P500 ended Tuesday’s session at 4,713.07 points, ie 0.92% higher than the day before. The Nasdaq rose by 1.41% and was again above 15,000 points. On Monday, this index was on an agreed correction border, almost 10% away from the November all-time record. Dow Jones increased by 0.51%, reaching the level of 36,252.02 points.
The highlight of Tuesday’s program in the financial markets were the statements of the chairman of the Federal Reserve. Jerome Powell told US MPs that the Fed intends to end its asset purchase program (QE, colloquially known as “printing money”) this year and raise interest rates. Investors have been speculating about both of these things for several months now, so it was not a sensation. According to the market consensus, the US central bank will expire QE by the end of March and in total will make 3-4 federal funds rate hikes by 25bp. each, after two years of breaking with the zero-interest rate policy.
– Inflation is well above the target. The economy no longer needs the very expansionary policies we are currently pursuing, said Jerome Powell. Economists had been telling Powell the same thing for months, but the Fed chairman argued recently that inflation was “temporary”. It is also well known that the Federal Reserve will not suddenly raise rates to 6-8%, a level that would have been obvious two decades ago with such high inflation and such a hot labor market.
– If the situation requires further interest rate increases over time, we will do it. We will use our tools to stop inflation, Powell said in response to senators’ questions. – We will probably allow a reduction in the balance sheet in the coming time, it is possible that it will happen later this year – added the Fed president.
The behavior of the US debt market is the best proof of the lack of faith in the Fed’s decisive actions. The yield on Uncle Sam’s 10-year bond is close to 1.8%, so it is even below the Fed’s inflation target. The profitability of 2-year securities is only 0.9%. This means that holding these securities to maturity almost guarantees a loss in real terms (ie adjusted for future inflation).
Krzysztof Kolany
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