This week we examine the resilience of the U.S. economy and explore the implications of subdued market volatility and recent liquidity injections from policymakers.
Key Insights:
- Lower interest-rate sensitivity, highlighted by the fact that 40% of homeowners don’t have mortgages and most mortgages are 30-year fixed, reduces the impact of Fed rate hikes.
- Strong demand tailwinds, driven by fiscal spending initiatives like the CHIPS Act and Infrastructure Act, alongside rising excess savings and robust immigration, bolster economic growth.
- Market volatility has remained notably calm, with over a year passing since a decline of over -2% in the S&P 500, potentially indicating a forthcoming period of increased market activity.
- Historical data suggests that low volatility phases often precede periods of strong market performance, providing insight into potential future market trends.
- Recent liquidity injections by policymakers, including the winding down of the quantitative tightening program and the Department of Treasury’s decision to finance the deficit through T-bills, aim to support financial markets and economic stability.
- Understanding these dynamics provides valuable insights for investors navigating the current economic landscape.
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