The Next Great Depression Isn’t Happening Right Now
Earnings are in and while we are still a ways from an “all clear”, the prospect of another Great Depression, once feared, has receded greatly.
Earnings were better than low expectations but the market is expensive on almost any metric that you choose to look at. Being now positive on the year, the market is likely ahead of where should be, buttressed by a very active Federal Reserve and prolific Federal Government stimulus. The trick is going to be maintaining that level of support until the economy starts to get to its feet and then strategically removing it before it creates over inflation. That is a hard balancing act to pull off.
Our Federal Reserve, unlike most other Central Banks around the world, has a dual mandate; it must keep inflation low AND employment high (most others must only keep inflation low). If unemployment persists you could have the Fed “stuck” providing low rates while inflation starts to build up. In that type of scenario stocks will be the best game in town as higher inflation and low rates is very bad for bonds but good for most corporations (some more so than others). It is something we will be watching closely over the coming months.