Stock Market Facing Drug Shortage
Simplifying the Money Game: The Impact of Fed and ECB Decisions on Stocks
Got your attention? Let's dive right in. That $95 billion the US Federal Reserve has been pulling outta the markets each month through bond sales? Yup, since September of last year. And guess what? For the first time since the end of the financial crisis, the money supply in the US is actually decreasing. That's right, no more easy money fueling the stock market rally of the past decade.
The European Central Bank (ECB) isn't far behind, planning to suck out 15 billion in liquidity monthly starting from March. This monetary tightening business is the strongest we've seen since, well, ever. So, what does this mean for the stock market?
Veteran fund manager Jens Erhardt reckons we should brace ourselves for some cloudy skies. In the past, stock markets have responded with a six-month delay to monetary tightening measures. Erhardt foresees a bleak stock market and economic outlook for 2023 from a purely monetary perspective. But hey, there's a twist! The US Federal Reserve could surprise everyone by slashing interest rates at the end of the year. But even then, Erhardt ain't exactly waving the all-clear flag.
Back in the day, there was always a delay between interest rate cuts and a stock market recovery. First, the bond market would jump for joy at the sight of falling inflation rates. And then, after a whole 12 months, the stock markets would follow suit. So, strap in. This might still be a bumpy ride on the stock markets this year.
Now, let's shift gears for a minute. Jeff Bezos, the guy who sold us books, comes with a word of caution. He warns against any major purchases and suggests sticking to these three assets. But, alas, that's a story for another day, folks. For now, keep your eyes on the stock market and the games the Fed and ECB are playing. Hold on tight, and remember, it's all about knowing when to hold 'em and when to fold 'em.
In light of the US Federal Reserve's reduction of liquidity and the ECB's planned monetary tightening, veteran fund manager Jens Erhardt advises a potential bleak stock market outlook for 2023. Historically, stock markets have exhibited a six-month delay in response to monetary tightening measures, and even if the Federal Reserve were to cut interest rates at year's end, recovery might still be delayed. Meanwhile, Jeff Bezos advises caution in investing and urges investors to be prepared for potential bumpy rides on the stock market amidst the ongoing monetary maneuvers by the Fed and ECB.
