Concerns are beginning to surface over the effect that the unprecedented economic stimulus efforts over the past year could have on the market.+
Will the Market Suffer Stimulus Side-Effects?
Concerns are beginning to surface over the effect that the unprecedented economic stimulus efforts over the past year could have on the market.
After the market bottomed out in early 2020 as fear over the pandemic gripped Wall street, the Federal Reserve stepped in and announced unprecedented moves to expand the assets it would be buying from just Treasury bonds to corporate and municipal bonds.
That’s in addition to the Fed’s March 15 announcement that it was cutting interest rates to record lows, resuming quantitative easing, and cutting bank reserve requirements to zero.
But as the economy begins to recover and conditions normalize, some analysts are ringing alarm bells that interest rates could see a massive surge over the next two years.
COVID-19 vaccines continue to roll out across the globe, and as business and consumer demand returns to normal, there are concerns that the 10-year Treasury yield could see a jump of several hundred basis points in 2021 and 2022.
But what does that mean for traders like us?
Let’s take a look…
Where’s the money?
Market analysts are currently concerned that the recovering economy, pent-up consumer spending power, and further stimulus measures would send bond yields through the roof.
That, in turn would force the Fed to enormously increase the scope of its quantitative easing in an effort to offset the rise in rates – sending bond yields down sharply.
Should that occur, the resulting rise in bond prices would make their valuation very unattractive to new buyers. We’d likely see an influx of capital into stocks, where it would be treated better.
How do I get some?
Look, yields might increase a little in the next couple of years, but they are at such historical lows that it may not have much of an impact.
Most likely if they do spike, it would be bad for company spending and growth. While that could derail the stock market a little in the short term, in the future it could ultimately make for some great entry points as more money flows into stocks.
But knowing where that money is flowing is what’s going to make the difference between a profitable portfolio and striking out.
Thankfully, I have just the right tool for the job…
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In the Spotlight: Calling an Audible on Super Sunday
Some of the world’s largest companies are choosing to remain on the sidelines this Sunday during one of the biggest advertising events of the year.
Big names like Hyundai Motor Company (HYMTF) and The Coca-Cola Company (KO) are among a group of companies opting to make charitable donations instead of spend on pricey Super Bowl ads.
Companies spend millions of dollars each year to get a spot on one of sports’ biggest event, but is it really worth the price tag? It will be interesting to see if sales after the Super Bowl will reflect any difference for companies that would typically advertise during the big game.
If not, it could cause a number of businesses to reconsider how their advertising dollars are spent. If nothing else, big-name brands shirking expensive ad spots could open up opportunities for lesser-known brands. Stay tuned.