As we pointed out earlier, one argument for being bullish right here is the fact that central banks are, for the most part, in easing mode right now. The ECB is doing a lot more than it was a few months ago, and the Fed is going to be on hold for a long time, with the possibility that it does another round of QE in the coming months. Other, small central banks are doing the same.
We’ve run this chart from Morgan Stanley before, but it’s always nice to bring it out again: It shows that through the country’s long bust period, many of the bottoms and tops of the market have coincided with either new stimulus measures, or counter-stimulus measures (tightening/hikings).
So far the U.S. has mostly avoided much counter-stimulus, though not for lack of political effort on that front. And the Fed has done a good job keeping the hawks at bay.
But there are twists and traps everywhere, and it’s important to recognise the risk of counter-stimulus in a market like this.
Photo: Morgan Stanley
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