ISCV - Weekly Market Pulse: Divergence

• With the Q4 rebound on track and services picking up to offset some of the expected slowdown in goods spending and the announcement by Pfizer of an effective anti-viral for COVID, why did bonds rally? Why did interest rates fall so hard on Friday after the payroll report?
• Some said that the rally in bonds was evidence that the Fed is making a mistake and tightening into a slowdown. Others posited that the Fed’s announcement was so dovish that the market had to factor in a longer timeline for raising rates.
• There are several problems with both of those arguments, starting with the idea that tapering is tightening - if anything, tapering is a loosening of monetary policy. Suffice it to say that, at best, QE does nothing - for the economy - so stopping it does nothing as well.

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