So just how important was Federal Reserve President Jerome Powell’s speech on inflation? In the speech that markets eagerly awaited, Powell announced that the Fed would target inflation at an average of 2% over time, and that the central bank would not feel obligated to raise interest rates if it believed the economy runs on full employment.
The S&P 500 SPX,
on Thursday ran to a new record, while the Nasdaq COMP,
glide, though to his on one to highest perch ever. US Treasury revenue was up, especially at the long end TMUBMUSD30Y,
that is not the direction you would expect from a seemingly deafening movement. Perhaps, as Professor Tim Duy of the University of Oregon wrote, the market felt that there was no “meat on the bones of this policy” because the central bank left the implementation fuzzy.
But that is the view in the short term. Joachim Klement, investment strategist at British brokerage Liberum Capital, said the change in the Fed’s policy goals makes it almost inevitable that the next five years will be dominated by a Japan-like environment of low nominal and real, as inflation-adjusted, interest rates.
In a note titled, “Low Rates Forever? – Possibly, “Klement points out, had the Fed followed its new inflation strategy, it would have left the interest rate unchanged a decade after the 2008 financial crisis.” Given the historical experience and current Fed and market implications forecasts, we find it safe to argue that the Fed is raising the interest rate not only for three years, but for the next five years or no longer, ”he says.
The long-term trend in interest rates is clear.
Quantitative easing will continue because the Fed needs to keep nominal rates low over the yield curve, he says. For 10-year Treasury TMUBMUSD10Y,
this means a level of 2% to 2.5% to keep it over the last few decades – which would mean a big upward movement from current depressed levels “but not enough to curb borrowing costs.” The Bank of England and the European Central Bank will also have to keep interest rates low, just to avoid valuing their currencies against the dollar DXY,
despite the difficult economic situation facing Europe and the United Kingdom, a tightening would still make it unlikely.
He admits, over the next 12 months, growth strains are praised for perfection, and value can perform better. “However, low nominal and real rates mean that discount factors for future cash flows will decrease and thus the stock market ratings are likely to increase. Equities with a larger share of cash flows further into the future (in other words growth stocks) will experience a stronger recovery than high dividend stocks and equities with less growth, ‘he said.
He highlighted companies with strong sales and earnings growth, but low leverage, who have the space to further stimulate their growth through lending. For MarketWatch, he produced a display of S&P 500 companies with strong sales and earnings growth but low levels of financial leverage.
| Companies | P / E | Debt / equity | Average EBIT growth of 5 years (%) | Average sales growth of 5 years (%) |
| Paycom Software PAYC, |
96.4 | 11.6 | 70.5 | 30.7 |
| Facebook FB, |
35.8 | 10.7 | 36.9 | 36.9 |
| IHS Markit INFO, |
57.8 | 60.8 | 32.4 | 36.7 |
| Arista Networks ANET, |
26.9 | 3.4 | 45 | 24.5 |
| Adobe ADBE, |
67.4 | 39.3 | 51.3 | 22 |
| Nvidia NVDA, |
82.2 | 21.7 | 30.3 | 30.5 |
| Abiomed ABMD, |
82.9 | 1.1 | 54.1 | 19.9 |
| Fortinet FTNT, |
54.9 | 3.5 | 42.1 | 20.8 |
| Intuit INTU, |
49.8 | 70.3 | 24.1 | 24.1 |
| Cigna CI, |
12.2 | 83.8 | 18.8 | 51.9 |
| Prologis PLD, |
66.8 | 47.5 | 25.4 | 22.7 |
| Lennar LEN, |
11.4 | 48.5 | 21.8 | 19.6 |
| Cincinnati Financial CINF, |
22.4 | 9 | 26.7 | 16.5 |
| SVB Financial SIVB, |
14.6 | 8.8 | 19.5 | 19.8 |
| Bristol-Myers Squibb BMY, |
26.4 | 92 | 17.9 | 21 |
| Alexion Pharmaceuticals ALXN, |
10.6 | 24.5 | 19.5 | 17.9 |
| Align Technology ALGN, |
114.3 | 4.4 | 22.9 | 15.9 |
| Progressive PGR, |
10.6 | 33.2 | 21.5 | 15.8 |
| Regeneron Pharmaceuticals REGN, |
24.8 | 6.7 | 21.8 | 14.8 |
| Micron Technology MU, |
21.4 | 15.9 | 19 | 16.5 |
The buzz
Japanese Prime Minister Shinzo Abe said he would resign over health issues – causing losses for Japanese stocks NIK,
and a rise in the Japanese yen USDJPY,
US President Donald Trump accepted the Republican nomination for president, while saying that former Vice President Joe Biden would be a “destroyer” of American jobs. Since February, 12.88 million jobs have been lost, according to the Labor Department. There has been a huge shift in superiority in Trump’s favor on the Betfair exchange, with Biden now just narrowing the lead.
Friday’s session of the Jackson Hole Symposium addresses the Governor of the Bank of England, Andrew Bailey, and academia addresses policy uncertainty, expectations in monetary policy and post-pandemic monetary policy. There are also many economic releases, including on personal income, trade, and consumer sentiment.
There were a number of earnings reports released after markets closed on Thursday, with HP HPQ,
and Dell Technologies DELL,
each reports strong demand for personal computers, due to the coronavirus pandemic that keeps workers at home.
Working day WDAY,
share may rally, after the human resources software company reported better-than-expected revenue and strengthened its support for subscription revenue. Company for identity management services Okta OKTA,
also shot Wall Street treasures at its quarterback and prospect. Clothing Store Gap GPS,
reported a smaller loss than expected, due to strong online sales.
Coca-Cola KO,
announced it will offer voluntary severance packages to 4,000 workers.
The brands
US stock futures ES00,
YM00,
NQ00,
roas.
Gold GC00,
rallied, and oil futures CL.1,
turned higher.
Random reads
This painting of masterpiece has been stolen – for a third time.
An unbroken dinosaur egg revealed a surprising face.
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