MarketMinder

Headlines

Here we analyze a selection of third-party news articles—both those we agree and disagree with.

Please note: Though we make every effort to source articles from freely available sites, we will also regularly include articles on sites that have limited content for non-subscribers. Doing so is increasingly unavoidable, as more and more financial media is published behind paywalls.


Wall Street Is in Limbo as Investors Look to Powell for Guidance

MarketMinder’s View: Don’t fight the Fed (i.e., Fed rate hikes are inherently bad for stocks) is a pervasive mantra in investing circles, and this article pushes that myth. “From mid-June to mid-August, the S&P 500 rose about 17 percent, gains that in part reflected a view in markets that the Fed had pivoted away from its all out war on inflation to a more gentle approach.” The supposed implication looking ahead to upcoming Fed pronouncements: “Bank of America analysts forecast that the recent rally in the market will give Mr. Powell room to lean hawkish — financial parlance for monetary policy that is restrictive for the economy — and that could send stocks lower. Conversely, a more moderate tone from Mr. Powell — as he has delivered before at Jackson Hole — could push stock and bond prices higher.” The problem with all this, in our view? Markets don’t revolve around the Fed or its so-called “guidance.” While markets do account for central bankers’ actions, Fed policy’s macroeconomic impact is generally overstated. Monetary policy influences money supply growth, but it takes time to work its way into the economy. Think about how rate hikes are likely to affect lending—the primary way Fed policy translates to economic activity. Even if the Fed inverts the relevant 3-month to 10-year section of the Treasury yield curve, the biggest banks’ deposit rates remain pinned near zero. Their low cost of funding new loans and much higher longer-term lending rates (banks’ prime loan rate stands at 5.5% today, per the St. Louis Fed) means making new loans remains profitable—whatever the Fed does. Indeed, total US loan growth has been accelerating, not slowing, this year (again per the St. Louis Fed). That isn’t generally what you see in or entering a recession—or if monetary policy was “restrictive for the economy.”