Several top economists said the stock market plunge had nothing to do with economic fundamentals and the outlook remained strong

2022-06-05 0 By

According to, some market participants believe that stock market selloff after selloff and deepening losses actually portend trouble for the economy, but it’s hard to reach a consensus on the economic indicators and momentum actually received.”In theory, yes,” said Anita Markowska, chief U.S. financial economist at Jefferies.The stock market slide could dent economic growth prospects.”But, in practice, I don’t think it’s enough to lead to a downward revision in the outlook.”Indicators of financial conditions in the US are still far from signalling a problem with liquidity.Even the premium on junk-rated corporate bonds is at its highest level since early last month.That makes it easy for Fed Chairman Jerome Powell and his colleagues to decide at their first policy meeting On Wednesday to be ready to raise interest rates in March, observers said.”If you look at the financial conditions indices, they are still very, very easy to make decisions,” says Roberto Peli, partner at Cornerstone Macro.That tells you maybe we’re not close to the tipping point yet.And I believe that’s the argument Colin Powell will be making on Wednesday.”At the same time, former Fed economist David Paley said policy makers are likely to discuss the immediate causes of this month’s stock market decline.The selloff began in early January as equity investors sharply increased expectations that the Fed would begin raising interest rates in March — months earlier than previously expected — and begin shrinking its balance sheet (QT) this year.The decline was further exacerbated by rising tensions in Ukraine (UKR) and falling consumer confidence over cost of living issues.In addition to the prospect of tighter monetary policy, developments in Washington over the past month point to fiscal policy being a bigger drag on growth in 2022 than economists had expected.President Joe Biden’s signature economic program, the roughly $2 trillion “Build Back Better” bill, has been frozen in the Senate over opposition from key lawmaker Joe Manchin of West Virginia.”Now you’re talking about a sharp drop in the stock market, so you could have multiple negatives,” paley said.It’s too early to draw any conclusions, but people will be watching these developments, which at least suggest caution, but one thing to note is that financial conditions remain quite accommodative.”While falling stocks can reduce household financial assets on paper, that doesn’t necessarily affect consumer spending.John Dick, CEO of the market research firm Civic Science, says ownership of U.S. stocks is concentrated, with only one in five Americans saying they pay close attention to financial markets.A sustained sell-off always changes the outlook, Mr. Dick said, so “a sustained market downturn that affects retirement savings and the job market over the long term is another matter.”Earlier this month, economists predicted historically strong growth this year – an indication of a solid fundamental foundation.The median estimate in a Bloomberg survey is for gross domestic product growth of 3.8 per cent this year, well above the average of 2.3 per cent in the five years to 2019.Hottest inflation in decades:Unlike the stock market crash in March 2020 when the covid-19-triggered economic shutdown sent stocks tumbling, the current turmoil has not been accompanied by a surge in demand for cash or a disruption in trading — as happened in the US Treasury market nearly two years ago.Diane Swonk, chief economist at Grant Thornton, an accounting firm, said a “disorderly correction” in the stock market would be a different story for policymakers.”The Fed is trying to tighten extremely loose financial conditions,” she said.To the extent that the market does it for it, it has to adjust.”With US inflation almost three times the Fed’s 2 per cent target and a 3.9 per cent unemployment rate suggesting a tight Labour market, policymakers may have limited room to adjust their exit plans from easy policy.Neil Dutta, head of economics at Renaissance Macro Research, wrote in a note Monday that even a signal from the Fed that it is not considering raising rates by half a percentage point in March could calm investors.”Investors have only seen declines of this magnitude on a handful of occasions since 2009,” Dutta said.Given current market pricing, indications that the Fed will not start raising rates by 50 basis points could be enough to support risk sentiment.”————— Market Matrix: Futures & Derivatives Trading Research Center – Find your best trading opportunities from our selected stream of top news sources like Bloomberg/Reuters /CNBC/WSJ!+++ Top investment banks macro/stock index/crude oil/gold research report and strategy!+++ Economic data/industry report in-depth interpretation!+++ Follow ++ View all resources