Stock market succumbing to pharmaceutical shortage.
The Fed's Money Crunch and the Stock Market's Stormy Forecast
The US Federal Reserve has been drawing a whopping $95 billion from the markets monthly since last September, selling bonds. Consequently, for the first time since post-financial crisis days, the American dollar supply is tapering - and the fuel for the decade-long market surge is dwindling.
Following suit, the European Central Bank (ECB) plans to drain €15 billion from the market each month effective March. This is the tightest monetary grip since, well, ever.
So what's in store for the stock market? Veteran fund manager Jens Erhardt paints a grim picture: "Historically, stock markets have reacted tardily to monetary tightening measures, giving us a six-month window of doom in 2023 from a monetary standpoint."
Even if the Fed decides to slash interest rates again by year-end, Erhardt remains pessimistic: "Previous experience shows us that the stock market rallies with a lag following interest rate cuts. First, the bond market celebrates falling inflation, and it takes a full 12 months for the bulls to follow suit." So buckle up: This year might be another bumpy ride on Wall Street.
By the way: Jeff Bezos warns against big purchases and suggests these three investments instead
Now, let's take a look at what lies ahead. The Fed's prolonged low-rate environment has stretched corporate pension funds thin, with bond yields diminishing and companies struggling to meet their obligations. The low-rate environment offers scant relief to institutional investors, as seen in the staggering $439 billion pension deficit reported by Milliman.
Europe, too, isn't immune to the market turbulence. Although the ECB's plans aren't explicitly detailed, history teaches us that financial crises and volatility in the global markets heighten risks when central banks tighten the monetary reins. In 2012, for instance, the S&P 500 experienced a 7.6% decline amid Europe's debt crisis.
Finally, tight monetary policies tend to increase borrowing costs and reduce market liquidity, potentially leading to equity market downturns. The delicate dance between rate hikes and corporate performance could exacerbate vulnerabilities amongst companies heavily reliant on low-interest debt or steady returns. In summary, the interplay between rate policies and market dynamics underscores persistent systemic pressures rather than individual forecasts like those of Mr. Erhardt.
- The liquidity in the finance market may worsen in 2023, as both the US Federal Reserve and European Central Bank are tightening their monetary policies, potentially leading to equity market downturns.
2.economic analysts may have a gloomy outlook on investing in the stock-market, particularly in 2023, when the Fed's monetary tightening measures could take effect.
- Withdrawing funds from pension funds may become more challenging in the near future, as corporate pension funds are stretched thin due to the Fed's prolonged low-rate environment, and the low-rate environment offers scant relief to institutional investors.
- With the stock market taking a hit from the Fed's and ECB's monetary tightening measures, veteran fund manager Jens Erhardt suggests being cautious about making big purchases and instead considers alternative investment opportunities.
