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The Markets Central banks have a lot of influence on investors, markets and economies. For the last year or so, the Federal Reserve has been purchasing $120 billion of bonds every month to ensure United States markets remained liquid and interest rates remained low during the pandemic. Last Wednesday, the Fed announced that it is ready to begin to buy fewer bonds, a process known as tapering. The Fed’s taper is expected to begin before year-end. The Fed is not expected to push interest rates higher for some time so, overall, monetary policy will continue to support economic growth. [...]

The MarketsIn recent weeks, bullish sentiment has drifted lower like sediment settling after a storm.Every month, Bank of America (BofA) surveys global asset managers. The most recent survey, which was conducted in early September, showed that fewer managers remain optimistic about prospects for global economic growth (13 percent) or corporate profitability (12 percent). That’s half the number in the previous survey and the lowest percent since April 2020, reported Katie Martin of Financial Times.When optimism declines, managers typically retreat to safer harbors and portfolio exposure to stock declines. That hasn’t happened this time. About one-half of the global asset managers [...]

The Markets Stagflation isn’t trending, but it was mentioned in quite a few headlines last week. Stagflation is a portmanteau of ‘stagnation’ and ‘inflation.’ It occurs when a country experiences slow economic growth along with high inflation and high unemployment. In the United States: Economic growth was strong during the second quarter; 6.5 percent year-over-year, according to the Bureau of Economic Analysis. However, some forecasts for third quarter’s economic growth have been revised downward. Economists at one large investment bank lowered their estimate from 9 percent to 5.5 percent, reported Lindsay Dunsmuir of Reuters. Inflation is the rise in prices [...]

The Markets “Raise your words, not your voice. It is rain that grows flowers, not thunder,” advised the Persian poet Rumi. Last week, Federal Reserve (Fed) Chair Jerome Powell’s words helped grow the week’s equity market returns. In his speech at the Economic Policy Symposium in Jackson Hole, Wyoming, Powell confirmed that the United States economy had made substantial progress toward the Fed’s maximum employment and price stability goals. Consequently, the Fed is likely to slow and eventually stop the bond purchases that have been ensuring smooth market functioning during the pandemic. Powell also offered assurance that the target range [...]

The Markets Markets were shaken last week by a potent cocktail of central bank tapering and economic growth concerns mixed with coronavirus and a splash of the new Chinese privacy law. On Wednesday, the minutes of the United States Federal Reserve’s Open Market Committee Meeting were released. They confirmed the Fed could begin tapering – buying fewer Treasury and U.S. government agency bonds – sooner rather than later, reported Jack Denton and Jacob Sonenshine of Barron’s. While that wasn’t new information, investors startled like cats surprised by cucumbers, triggering a broad sell-off. In the United States, economic data was mixed. [...]

The Markets What is the most important driver of economic growth in the United States? The most common way to measure economic output is Gross Domestic Product or GDP. It’s the value of all goods and services produced in our country over a specific period of time. GDP is a combination of the following: Government spending Business investment Consumer spending Net exports (Exports minus imports). In June, U.S. GDP was almost $23 trillion, reported the Bureau of Economic Analysis. A trillion is a difficult number to comprehend. Jerry Pacheco of KRWG explained the amount like this, “If you laid one [...]

The Markets Are we there yet? For months, investors have wondered when the Federal Reserve (Fed) might begin to “normalize” its policies, a process that will eventually lead to higher interest rates. Last week, a better-than-expected unemployment report – showing a gain of almost a million jobs – sparked speculation about whether we’ve arrived at that point. It’s difficult to know. When the pandemic arrived, the Fed adopted policies that stimulated growth. It cut short-term interest rates to zero and began buying Treasuries and agency mortgage-backed securities to keep long-term rates low, too. Low rates make borrowing less expensive for [...]

The Markets The Chinese dragon cast a shadow over free trade and foreign investment last week. For decades, investors have recognized the investment potential of China. Since the country opened to foreign trade and investment in 1979, its economy has grown rapidly. Through 2018, its gross domestic product (GDP), which is a measure of economic growth, increased by 9.5% a year, on average, according to the United States Congressional Research Service. The country’s gradual economic development lifted millions out of poverty. In 2020, about 20 percent of the world’s middle class lived in China. China’s middle class has an [...]

The Markets Shortest ever. Last week, the National Bureau of Economic Research (NBER) finally announced the official dates for the recession that occurred in 2020. Economic activity peaked in February 2020 and bottomed in April 2020. That makes the pandemic recession the shortest in American history. According to the NBER, “The recent downturn had different characteristics and dynamics than prior recessions. Nonetheless, the committee concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warranted the designation of this episode as a recession, even though the downturn was briefer [...]