Below, George Lagarias, Chief Economist at Mazars, comments on the actions of the fed and the US market.
George Lagarias, Chief Economist at Mazars says: “The S&P 500 has rebounded 15% from its lows and is now near 10% from its highs. This movement is difficult to reconcile with a looming recession, slower earnings, especially for Big Tech, an energy crunch in Europe, wobbly real estate markets and a China still in obvious trouble.
The movement comes down to one thing: While, openly, the Fed has been very hawkish, at the same time it has been signalling to financial markets that conditions will remain accommodative for a long time. So, while performing sharp rate hikes and remaining hawkish, the Fed’s dovish approach to its balance sheet is the real signal markets awaited to rebound. After May, the Fed had announced Quantitative Tightening of $45bn per month, a total of $135b. Instead, it delivered less than half that, $64b. This explains the summer rally.
For a short term, this may serve a purpose. A market meltdown along with a recession may be too much to handle. But over the long term, investors should know that they need to be looking for the next paradigm. And until they find the next ‘beta’ play, they should remain focused on those timeless fundamentals that serve truly long-term portfolios.”