Where The Market Is NOW Episode 75

It feels like we're sliding into the end of the year on two wheels, so if you're uncertain where the economy is hopefully the content below will provide you with clarity. 

The third quarter saw records in the markets, but we’ve had pervasive growth concerns. Some pundits predicted double digit growth, but GDP in the third quarter was 6.4%. Not bad, but it wasn’t what most analysts were expecting. So, where are we now that we are about halfway through the fourth quarter?

Democrats in Congress finally got a $1.75 trillion infrastructure spending bill passed to give President Biden a policy win, but our high levels of spending have already created inflationary pressure on the economy. What will additional spending do? 

When the COVID shutdowns happened last year, President Trump, with the Federal Reserve immediately turned on easy money measures, and it appears the spigot was turned on a little too strong. What does that mean?

In order to keep the economy from descending into a deep recession last year, the government began creating $120 billion per month and buying its bonds and buying equities. Also, the Federal Reserve lowered interest rates, which led to greater price increases in things like homes. This liquidity from the $120 billion per month expenditure drove the market back up last year, and is partly responsible for the markets continually hitting all-time highs this year.

This led to the inflationary pressure, which has caused the Federal Reserve to vacillate on when to begin reducing the $120 billion monthly purchases and when to raise interest rates. Remember, it took four years for the tapering process to end after the Great Recession that dipped to its slowest point in 2009.

From Yahoo Finance, “BlackRock Inc.’s Rick Rieder and Allianz SE’s Mohamed El-Erian are among those warning that systemic risks will only multiply, unless monetary officials take more decisive measures to pare extraordinary pandemic stimulus. While policy makers are acutely aware of the dangers in the easy-money era, their accommodative stances are encouraging ever-increasing flows to the riskiest markets.” 

Last week the Fed announced the tapering would start this month, and they would reduce the monthly purchases by $15 billion per month. Now we’ll wait to see if this causes volatility in the market.

Another challenge we face is a complete Biden reversal from last year when he said nobody would be forced to get a vaccination to it now being mandated...

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