Surging stock markets turn a blind eye to U.S. Fed at their own risk
BNN Bloomberg
Neither war, disease nor inflation are proving capable of preventing U.S. stocks from doing what they’ve almost always done for 13 years: go up. How policy makers devoted to getting inflation under control will view that is becoming a hot topic on Wall Street.
Neither war, disease nor inflation are proving capable of preventing American stocks from doing what they’ve almost always done for 13 years: go up. How policy makers devoted to getting inflation under control will view that is becoming a hot topic on Wall Street.
Right now, the 6.6 per cent surge in the S&P 500 ranks -- somehow -- as the biggest rally to coincide with the start of a Federal Reserve rate-hike cycle since World War II, data compiled by Ned Davis Research and Bloomberg show. Fueled by positive economic reports, equities just notched their second straight week of gains, with the S&P 500 recouping half its losses since January.
Two distinct views have coalesced around the rally. One, that buoyant markets create headaches for central bankers, representing a failing grade on their efforts to curb inflation and working against that goal by keeping financial conditions loose. Another school holds that as long as things stay peaceful in markets, Fed Chair Jerome Powell has freer rein to administer the type of medicine needed to get the job done.
“The last thing Chairman Powell has these days is inflation-fighting credibility,” said Michael O’Rourke, chief market strategist at Jonestrading. “Ironically, the more resilient financial markets are, the greater opportunity they provide for the chairman to reestablish that credibility.”
The S&P 500 has gained in all but two sessions since March 16, when the Fed announced its first rate hike since 2018. On Tuesday, when Powell toughened his stance and said the central bank is prepared to raise rates by a half percentage-point at its next meeting, the equity gauge jumped more than 1 per cent, rounding out its best six-day rally since 2020.
