The consensus of the investment community at this stage is that the Fed’s firm attitude towards economic revitalization will bring support to the stock market. However, some analysts believe that a bear market may still be accompanied by monetary stimulus.
In order to help the U.S. economy survive the pandemic crisis, the Fed promised to use all tools to support the economy. In addition to maintaining interest rates close to 0%, the Fed will also conduct tens of billions of dollars a month.USDThe debt-purchase plan of China has pushed up bond prices and lowered yields, prompting investors to flock to high-risk bonds that provide high returns to reduce borrowing costs and encourage consumers and companies to make loans or expenditures.
However, some analysts believe that a bear market does not necessarily occur only when monetary policy is tightened. Ned Davis, the founder of Ned David Research, said that even if the Fed does not tighten monetary policy, a bear market may form.
The monetary tightening policy refers to the Fed cutting the money supply by raising the federal funds rate or reducing the scale of debt purchases to prevent excessive hot money in the market from triggering inflationary pressure.
Davis found that although the Fed did not implement monetary tightening in 1962, 1987, and 2000, the United States fell into a bear market. For example, when the Fed cut interest rates in 2000, the bear market continued to occur. After the federal funds rate reached a high of 6.5% at the end of 2000, it was less than 1% at the end of 2003. Between September 2000 and 2003 3 During this month, the S&P 500 Index fell about 44%.
Despite this, Glenmede Investment Chief Jason Pride believes that US inflation and market inflation expectations are still relatively moderate at this stage, and are lower than the 2.0-2.5% range set by the Fed. It is unlikely that inflation and interest rates will surge. Also in a reasonable state.
Davis said: “Don’t fight the Fed, and more importantly, don’t fight the tape.” The former refers to when the Fed implements loose monetary policy, investors should not sell stocks, the latter This means that the stock’s recent gains usually herald future gains.
Since 1968, in years where the financial situation is moderate, the Fed remains accommodative, and the S&P 500 index trading price is above the 12-month moving average, the S&P 500 has averaged an average annual return of 18%. When the two conditions are different, or when neither condition occurs, the average annual rate of return is 4.5%.
However, Davis believes there is still a possibility of a bear market.
He said that if the S&P 500 Index fell 7.2% from its high of 3702 last Thursday, selling the stock would be a good idea. If the index rose 8.4% from last Thursday’s closing price to 4021 points, it is recommended to buy.
“If there is a sell signal, commercial paper, short-term and low-yielding corporate bonds may perform better than stocks,” Davis said.
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