Don’t Fight the Fed

While much was dark last week, our economic data began to rise off of historical lows. The most common question we receive is how can the market be so decoupled from the economy. An old investing expression comes to mind: “Don’t fight the Fed.”

The Federal Reserve, along most of other central banks in the world, want the economy and stock market to go up. To do that they have lowered rates and are printing money at levels never seen before in modern history. With interest rates now at zero, and we did cross negative for periods of time, excess money has no place to go. Thus when the stock market shows signs of stability or our economy starts to do the slightest bit better, then those excess funds flood into the stock market.

It does beg the question what happens afterward. Monetary theory would say we are at risk from runaway inflation, though there is very little sign of that now. For now at least, we will be content to leave that in the future and hope this flood of dollar bills works to stimulate the economy as much as it has boosted the stock market.

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