Our call of the day from TS Lombard chief economist Steven Blitz warns that the "golden era of Fed-controlled equity markets" is nearing an end.
A powerful, tech-led stock surge may be on the cards for Thursday, with Facebook parent Meta Platforms in the driver’s seat after less disastrous than feared results.
With earnings, inflation, a COVID-19 resurgence and war all in the balance, any equity gains could easily disappear in another sell-the-rip move. Wariness abounds as gross domestic product data loom, along with Amazon and Apple results due later. “The Fed’s communicated policy trajectory was intended to weaken equities — equities and the dollar are the Fed’s main conduits to impact the economy and, in turn, inflation,” said the economist, in a recent note. “An acceleration of current market weakness adds to our expected near-term downswing in spending and, more critically, threatens to embed a much weaker outlook for spending heading into next year.
The above chart notes, importantly, that young boomers are most exposed to stocks — 46%, with the under 40 group least exposed at 3%. Generation X owns 20%.“The combined 40-to-69 group accounted for 62% of consumer durables purchased since the economy bottomed in spring 2020. From here, it is easy to surmise that between satiated pent-up demand and falling equity valuations, consumer durable spending takes a hit,” he said.
“The Fed could very well end up undermining their future ability to drive household balances back into equities for the next upturn. The Fed’s ability will already be compromised to a point, anyway, by aging baby boomers rebalancing toward cash — a rebalancing aided by higher inflation and policy rates returning a yield to cash,” Blitz said.
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