JITTERS BUG U.S. MARKETS’ FIRST WEEK OF DECEMBER
U.S. markets began December with a broad tech-sector sell-off and bond yields plummeting as steeply as they did during the early days of the COVID War.
Still digesting news that the U.S. Federal Reserve will begin closing down its $120-billion monthly bond-buying program, investors learned that the program might end even sooner than the mid-2022 timeframe that the Fed had projected earlier (see related story in this issue).
When the program ends, the Fed will raise interest rates, the central bank has all but promised.
As we have forecast, when the Fed’s splurge of cheap money dries up, so too will the artificially propped up equity markets and the economy.
Last week, the word on The Street was the money junkie gamblers, i.e., “investors,” are also leery of inflation’s long-term impact on an already unsteady economic recovery, highlighted by November’s feeble jobs report showing the economy created only 210,000 new payroll slots, less than half of the 573,000 analysts had expected (see related story in this issue).
As a result, investors pivoted to bonds, driving yields on 10-year treasury notes below 1.4 percent for the first time in almost three months.
“Fixed-income markets are moving in the opposite direction of what everyone’s monetary policy expectations are,” chief investment officer Jason Pride at Glenmede told The Wall Street Journal.“There’s a hint of the market being scared of a Fed mistake,” he said.
TREND FORECAST: Equity markets have been lounging on cheap money and easy credit since the Great Recession.
The market’s reaction to the ending of the Fed’s bond-buying spree validates our forecast that we have often repeated: when the Fed takes away the crutches, equity markets will drop and the U.S. economy will slow.