Today, the markets were tested at their all time highs. The massive dip this morning was due to concerns of the 10 yr treasury yields rising (meaning bonds were going down). Though this signals a strengthening economy, investors were worried that the Fed would announce an early interest rate hike to sustain healthy inflation levels. Jerome Powell, the President of the Federal Reserve, came out to encourage investors: interest rates will stay down until a substantial amount of recovery is in place. His announcement + Consumer Price Index results were positive for markets.
What does this prove about our current economic climate?
Inflation is increasing due to the printing of money.
Corporate earnings are increasing
Consumers are still open to spending (CPI report)
These three together usually offer accelerated economic strength.
Overall, the economic forecasts for 2021 will be positive, however, I think there will be one correction sometime this year due to fears of economic instability. Social impact plays a huge role in how markets react.
Keep in mind, the markets are in their most VULNERABLE state. Interest rates are at the lowest they've ever been, and the Fed is doing all they can to prop up the bond markets. They've basically used all of their tools to keep markets stable due to the pandemic.
What does this mean for you?
Markets are very vulnerable- the Fed doesn't have much left to prevent a downturn. One big crisis event can send the SPY down 60%. No other tools exist to save our stock market, other than putting a freeze to it. Keep this in mind when investing this year. Many potential new external threats exist that can send our stock market down.
If you decide to stay long through this bumpy ride, please use protection.
If you've found any value in this blog, I please ask that you share it with one person. That would mean the world to me.
All in all, the risk is yours.
Any and all content on this page does not constitute as financial advice. I am not a financial advisor.