the fed supported the market

Last week, the us market ended with decrease, and not being able to fully repel the failure of the beginning of the week. Futures on the S&P500 was added on Monday 0.9%. This happens on the background data on the retail sales decline by 16% and industrial production by 11.2% in April alone. All these figures are worse than expected.

Corporate reporting of the American companies also are not happy. Already published results 90% included in the S&P500 companies, there is a drop in income in the first quarter by 64% yoy, and from this period only a couple of weeks occurred in the pandemic.

Such failure of performance does not correspond to the optimism of the markets. Stocks, apparently, promote the purchase of retail investors and fed policy. In parallel with the horrific economic data reported record inflows of money from retail investors. They rush to buy back drawdown of the market and to bet on stocks due to the improved situation with the pandemic. In a growing number of countries have removed restrictions that creates a positive news background.

However, the driver – not the only one on the market.

The fed last week initiated a new program to purchase corporate bonds. Weekly data on the fed's balance sheet on Wednesday said its an increase of 212 billion (65.5 billion the previous week) to nearly $ 7 trillion. These purchases seem to be just the force that shifted the balance of the markets in favor of shopping.

Apparently, it happened at the right moment, when the optimism of the markets began to deflate.

Conservative metric proposed by the Nobel laureate Schiller – inflation-adjusted incomes over the last 10 years – only started working her way down. The index rose above 30 only three times: at the peak of the stock market in 1930, the boom of the dot-com bubble and during the recent rally.

Starting to decline from levels significantly above the average, this index finds a bottom only after falling noticeably below average at 16.7. For reversal may be two reasons: extremely low stock prices or increased income stream from them. In the meantime, we nothing observe. Prices for us stocks is located close to the levels of September 2019, and the revenue stream from the companies only began to decline.

All this speaks in favor of the idea that the stock market remains very expensive to the current macroeconomic conditions, after a sharp decline in earnings per share makes the company relatively more expensive.

Even if we consider that the labour market will deteriorate so dramatically, yet this deterioration, which pulls the falling incomes, forcing people to reduce equities. The fed can briefly put out the fire in the markets, however, will not be able to redeem all the bonds on its balance sheet, and will not do it. As in 2008-m to year, at some time before the US politicians deciding which companies to save and which to allow to fail. 12 years ago it was Lehman's bankruptcy, but the bailout of AIG.

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Source: finversia.ru

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