Federal Reserve‘s “endless QE” cheers markets
America's Federal Reserve has slashed interest rates and launched unprecedented bond-buying programmes that stretched its mandate to its limits. More could be in store next year.
The post-election stockmarket is a “Labrador”, writes Ben Wright in The Daily Telegraph. Like the dog breed, it is proving “monomaniacally cheerful irrespective of circumstances”. Global markets had perked up in the days before the US election; polls suggested a Democratic blue wave would open the way for a $2.2trn stimulus package.
Yet when it became clear that Florida and Texas would not be painted blue, markets didn’t retreat. Instead, they decided that a Biden White House combined with a Republican Senate was what they had wanted all along. As the world waited for a final election call, the S&P 500 gained 7.3%, its best weekly performance since April.
A Biden White House with a Republican Senate is good news for US stocks, Andy LaPerriere of Cornerstone Macro told Barron’s. The Senate will block Democrat tax hikes on business, while a Biden administration should bring greater calm on the trade war front. The idea that divided government is good for equities is something of a Wall Street cliché. Yet there is little evidence for the idea that it is best when opposing parties are in Congress and the White House, says Paul Vigna in the Wall Street Journal. Since 1928 “there has been virtually no difference in the annual return of the S&P 500” between years with united and divided governments. If fact, stocks “slightly outperformed” when the executive and the legislature were in the same hands.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The almighty Fed
British stocks managed an even more impressively Panglossian feat, notes Philip Aldrick in The Times. The FTSE 100 gained more than 6% last week despite the small matter of England returning to a nationwide lockdown. In a world where fresh quantitative easing (QE)is always available, “bad news is no longer bad news… because policymakers won’t allow it”. In 2008 the banks were “too big to fail”, now that is true of the entire market. Central bankers won’t admit it openly, but there is a “price floor for assets… Call it market welfare for financiers”. The Federal Reserve last week agreed to keep interest rates at between 0% and 0.25% and continue its monthly purchases of $120bn-worth of bonds and mortgage-backed securities with printed money. The Fed’s balance sheet has soared from $4.1trn before the pandemic began to $7.1trn today, equivalent to 34% of 2019 US GDP.
Federal Reserve chairman Jerome Powell has done more than any politician to stabilise the markets this year, says Nicholas Jasinski in Barron’s. In the spring he slashed interest rates and launched unprecedented bond-buying programmes that stretched the Fed’s mandate to its limits. More could be in store next year. For investors, it is Jerome Powell, not Joe Biden, who is the man to watch in 2021.
-
Stop inheritance tax perk on pensions, says IFS
The government could raise billions of pounds in revenue by closing inheritance tax loopholes, such as on pensions and AIM shares. Is your pension at risk?
By Ruth Emery Published
-
Revealed: Best buy-to-let property hotspots in the UK
Looking for the best buy-to-let property locations in the UK? We reveal the top 10 postcodes with the strongest rental returns
By Oojal Dhanjal Published
-
AstraZeneca CEO’s £1.8mn pay rise approved despite shareholder opposition
AstraZeneca hiked its dividend to persuade shareholders to accept CEO Pascal Soriot’s pay rise. Is he worth his salary?
By Dr Matthew Partridge Published
-
Adidas, Nike or Jordans - could collectable trainers make you rich?
The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
By Chris Carter Published
-
The industry at the heart of global technology
The semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Three emerging Asian markets to invest in
Professional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
By Chetan Sehgal Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published