QVMM - Central Banks Pause Hikes Risk Assets Rally

2024-03-23 03:35:00 ET

Summary

• It’s typical for risk assets to rally when central banks pause rate hiking efforts and finally start easing policy. Eventually, the reason they start easing come to dominate headlines and thwart soft landing hopes.
• Higher interest rates and yields are better for savers but net negative in highly indebted economies.
• The average historical gain for the S&P 500 during a Fed pause period has been about 9%. This cycle, a 30% concentration in the ten most expensive stocks has powered the S&P 500 15% higher since last July.

On Wednesday, the US Fed paused for the fifth consecutive meeting since July 2023. Holding its overnight rate at 5.25-5.5%, the Fed expects that rising unemployment will prompt it to ease policy rates later this year. At the same time, Chair Powell intends to continue reducing the Fed’s balance sheet ((QT)), withdrawing liquidity from financial markets....

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