Market Week in Review
Market Week in Review is a weekly market update on global investment news in a quick five-minute video format. It gives you easy access to some of our top investment strategists.
On the latest edition of Market Week in Review, Senior Quantitative Research Analyst Abraham Robison and Senior Client Investment Analyst Chris Kyle discussed U.S. Federal Reserve (the Fed) Chairman Jerome Powell's response to market fears of a tapering in the central bank’s quantitative easing (QE) programme. They also provided an overview of President-elect Joe Biden’s coronavirus relief plan as well as recent global market performance.
Powell squashes talk of early wind-down to QE
Amid market concerns that a sharper-than-expected rise in inflation could lead to a tapering of the Fed’s bond-buying programme, otherwise known as quantitative easing, Chair Jerome Powell recently stressed that the central bank has no plans to scale back asset purchases any time soon, Robison said.
“Given the clarity of Powell’s 14 January remarks, we expect that the Fed will continue to maintain the pace of quantitative easing by buying $120 billion in bonds through the end of the year,” he stated, adding that the Fed chair also pledged advance notice should conditions warrant consideration of a slowdown in purchases.
These conditions revolve around the Fed’s dual mandate of price stability and maximum employment, Robison explained-and when it comes to satisfying both, the U.S. is still a long ways off. For instance, newly released data showed that inflation rose 1.4% in 2020, on a year-over-year basis, which is still well below the Fed’s average target of 2%, he noted. Meanwhile, growth in the U.S. labour market has stalled, with the country reporting 140,000 job losses in December, in addition to a sharp uptick in weekly unemployment claims the week of 11 January.
“While numbers like these could be viewed as concerning, Powell stated that he believes the U.S. economy can return to February 2020 levels sooner than envisioned, and expressed reasons for optimism moving forward,” Robison said. All in all, the Fed chair’s remarks served as positive news for markets, he concluded.
Unpacking Biden’s $1.9 trillion relief plan
Transitioning to fiscal stimulus, Robison noted that President-elect Joe Biden unveiled a $1.9 trillion relief package on 14 January to help alleviate the COVID-19 crisis. Highlights of the plan include direct payments of $1,400 to Americans, an extension of federal unemployment benefits through September, $350 billion in aid to state and local governments, $170 billion to help reopen schools and an extension of the child tax credit.
With the Democratic Party holding control of both houses of Congress as well as the presidency come 20 January, Robison expects that this plan will likely pass into law. “If so, when added to the two other major relief bills from last March and December, the amount of stimulus injected into the U.S. economy since the start of the COVID-19 crisis would total roughly $5 trillion,” he remarked.
U.S. markets had likely priced in a much lower amount of stimulus back in December, Robison noted, making the $1.9 trillion plan another piece of good news.
A reversal of fortune for 2020’s market laggards?
Broadening his gaze globally, Robison said that since the start of the year, value and small cap stocks have outperformed the broader global equity index-continuing a trend that began in mid-November. The reason? Rising yields and growing optimism over the health of the business cycle, due to positive vaccine news and additional fiscal stimulus, he said.
This has led to an outperformance to start 2021 in many areas of the market that struggled during the course of 2020, Robison said, noting that the Dow Jones Commodity Index is up 5% on the year. “The recent market rotation is yet another good reason for optimism as we head further into 2021,” he concluded.
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.
The information on this website is only intended for use by professional clients, regulated financial advisers and intermediaries who are knowledgeable and experienced in the financial services market and in investment products of this nature. If you are a retail or individual investor then please leave this website immediately and consult your financial adviser.
You should not use this website unless you understand its nature and the extent of your exposure to risk. You should also be satisfied that the website and investments are suitable for your client in light of their circumstances and financial position.
The information contained on this website is for information purposes only and you should not take it as constituting an offer, solicitation, inducement, commitment or invitation to subscribe for or to purchase, sell or hold any interest in any of the investments mentioned herein.
This website is not intended for distribution or use by anyone in any jurisdiction in which such distribution or use would be prohibited. Nothing on this website or in the materials referred to therein constitutes, or is intended to constitute, financial, tax, legal or other advice.
The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested. Any past performance figures are not necessarily a guide to future performance.
The website may contain forward-looking statements, which are based on a number of assumptions regarding present and future business strategies, which may or may not prove to be correct. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance.
Issued by Russell Investments Limited. Company No. 02086230 and Russell Investments Implementation Services Limited Company No. 3049880. Registered in England and Wales with registered office at: Rex House, 10 Regent Street, London SW1Y 4PE. Telephone +44 (0)20 7024 6000. Authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London E20 1JN.
All reasonable care has been taken by us to ensure that the information contained on this website is accurate at the time of publication. However, we accept no responsibility for the accuracy, adequacy or completeness of the information and materials contained on this website and expressly disclaim liability for errors or omissions in such information and materials. We and our respective affiliates do not have any obligation to update the information contained in this website and reserve the right to change these terms and conditions at any time, without notice.
We will not regard you or any person who accesses this website as our client in relation to any of the investment products or services detailed therein, unless expressly agreed.