The issue becomes all that more important given the continued uncertainty facing the fiscal relief package and Thursday’s jobless claims numbers.
Going into the Federal Reserve’s statement and press conference on Wednesday, there were already signs of less reliable price support from what had been a highly influential inflow of retail investors. Its impact, while still notable, has been shrinking gradually from the broader market to a narrowing set of specific companies.
Despite this, sceptical investors’ appetite to challenge what they regard as elevated valuations remained repressed by their experience with, and respect for, ample and repeated Fed liquidity injections. And it wasn’t just because the Fed has been keeping the cost of leverage and borrowing very low, has been buying trillions of dollars of securities and has been pushing investors from government bonds into higher-risk assets.
Although the Fed did deliver again for riskier assets with a more dovish-than-expected policy statement on Wednesday, the markets’ feel-good reaction evaporated during the press conference that followed. Several reasons have been cited for this, including the cautionary tone taken by Chair Jerome Powell and the way he addressed the prospects for fiscal policy.
I have written about before, the risk increases of a missed market hand-off from previously strong but fading liquidity to what’s urgently needed also for economic and social well-being: A strong lasting and inclusive recovery.
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