The message from Federal Reserve Chairman Powell was quite clear yesterday: fiscal stimulus is crucial for boosting the economy because monetary accommodation is no longer sufficient. Millions of Americans are asking “Where Have All the Good Times Gone”? Markets were initially uncertain about how to react to that message, but they later warmed to the educational tone set by the Chair. One might say they were “Hot for Teacher” when indices began a rapid advance in the afternoon.
We had actually begun to see some signs of life in underperforming value stocks. Bank stocks were among those leading the advance. I’m quite sure that “Jamie’s Cryin’” about the flat yield curve, but Mr. Dimon and other leading bankers had to be encouraged by some nascent steepening of longer maturities.
Then came the “Eruption” via a single tweet. The fiscal stimulus talks were “D.O.A”. House Speaker Pelosi and her ilk could simply “Beat It”. Markets plunged, reversing the prior day’s significant advance, but not breaching the lows seen as long ago as, well, Friday. One might ask, “Why Can This Be Love”?
Then, with little “Fair Warning”, the President changed course once again. Targeted stimulus talks were back on the table. Traders aren’t “Dancing in the Street”, but they are certainly celebrating the prospect. There is nothing that markets like more than exogenous money entering the economy. “So This Is Love?”
Sorry, but I “Ain’t Talkin’ Bout Love”. I am talking about the ramifications of stop and go fiscal negotiations for market volatility. It is hard to see VIX making a meaningful move lower when such crucial talks remain truly uncertain. If you ask whether I see an overarching plan in the President’s political machinations, I have to say “You Really Got Me”.
In the near term, I expect the markets’ movements to hinge upon around the clock news reports and tweets. Those who are attempting to get a good night’s sleep without proper risk management can expect to toss and turn “And the Cradle Will Rock”.
Source: Personal Photo take at the Metropolitan Museum of Art
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.