The upcoming market-moving event to watch for will be the Federal Reserve meeting this week. This meeting holds great value and consequences not only for typical monetary policy implications but also could serve as the final tradeable or market-moving event for 2020. It’s already been a crazy year, but the market could move based on what Chairman Powell has to say during the upcoming press conference and what he says about the central bank’s policy going into next year. Will we continue to have an economic seesaw because of the pandemic? Will other uncertainties such as a lack of a second stimulus package or the potential for a no Brexit deal continue to be an issue? The important point is that the Fed has been buying $120 billion of debt per month this year, which has been holding down interest rates. That has been a huge driver not only for economic recovery, but it also has been driving the market to come back so strong. Will the Fed clarify the quantitative easing going into next year? Will they increase it? Will they keep it to the level that it currently is? What Chairman Powell has to say will be very important. We know that the Federal Reserve does not have an easy job. They are having to manage an economy in which they are not getting help from congress so what he says Wednesday is going to be very impactful.
It is not just the United States having its central bank buying debt. It is a low interest rate environment, globally. We have now set a record with $18.4 trillion worth of negative-yielding debt, globally. Negative-yielding means that if you buy a bond today, between now and when it matures, you are guaranteed to lose money if you keep it until it matures. That concept has become foreign due to central banks expanding their balance sheets. When you hear about negative-yielding debt, you wonder who would buy that. The answer is central banks. The European Central Bank has similar bond-buying techniques as the United States in which, as previously mentioned, has been purchasing $120 billion of debt per month. Another point to make is that central banks’ balance sheets are up 40% year-over-year which has kept the pressure on interest rates, keeping them low and providing liquidity to the market. This also allows companies to go to debt markets and finance debt at low interest rates in order to get through this crisis. It also makes competitive markets like equities more attractive. So, it creates an incentive for savers to go out in the risk spectrum, which pushes up equity prices. The Federal Reserve and central banks across the world have really come out in force during this crisis. What they say at the end of the year, looking to next year, could be extremely important in terms of the market moving. The second big market mover we are keeping an eye on is the vaccine and the fact that it is being distributed. Nearly three million doses are being distributed as we speak with 145 sites receiving doses today. By Wednesday of this week, 500 sites across the country will get vaccination doses to give out to individuals. That is unbelievable logistically and really could help the economy.
We will see both a direct and indirect impact of the vaccine to watch for. The direct impact of the vaccine being delivered is that this is the largest logistical mobilization in the United States since World War II. If you think about it, there are a lot of parallels. We have repurposed factories and delivery methods, and the logistics of it are stunning. The positives of this are that there will be a lot of extra employment added, just working the logistics, supply chain, and to get this vaccine out which will have a direct impact. Another thing to note is that markets are driven by confidence. When individuals and companies have no idea where the downside is, like we had back in April, it causes a tremendous lag on the overall confidence of the economy. What the vaccine does is it gives consumers and companies, when they spend money, a floor of confidence. They see that help is on the way and that will be a monumental difference for markets going forward.
Greg Powell, CIMA®
President and CEO
Email Greg Powell here
Bobby Norman, CFP®, AIF®
Email Bobby Norman here
Ashley Page, JD, MBA
Senior Vice President
Email Ashley Page here
Trey Booth, CFA®, AIF®
Senior Vice President
Email Trey Booth here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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