- It is possible that US citizens’ relationship with the stock market has made the stocks “too big to fail,” Cornerstone Macro strategy expert Michael Kantrowitz wrote in a note to clients.
- The index S&P 500 has never had such a close correlation with consumer confidence, and the ratio of market capitalization to US GDP is at record levels
- Any downturn in the market could significantly slow down economic growth and force the country’s government to pay “a huge bill”, according to the expert.
- The best alternative for policy makers may be to keep the value of shares going up, Kantrowitz added.
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I US citizens value the stock market more than ever, and this phenomenon may have made the stocks “too big to fail”: to affirm it is Michael Kantrowitz, Cornerstone Macro strategy expert.
The correlation between the index S&P 500 and consumer confidence is at record levels, and so is the relationship between stock market capitalization and US GDP. The Federal Reserve’s benchmark interest rate remains close to zero, e public transfers today represent 46% of national income, a record percentage.
It is likely that these trends intensify as the pandemic continues to do damage, the expert said, adding that un any market correction would force the country’s government to pay “a huge bill”.
“Today more than ever, it is in the best interests of policymaker prevent the share price of stocks from falling!”He wrote in a note to customers.
Several commentators have criticized optimistic investors and have called the last bullish phase on the market a replica of the tech bubble of the 1990s. Kantrowitz believes that the current inflated price-to-earnings ratio is due to an entirely different factor. While stocks prior to 2000 appreciated due to “insanely high growth expectations”, today’s valuations would be due to the expectation that interest rates will remain low long, he said.
If growth slows in the current environment, he added, investors will be able to take advantage of a new phase of quantitative easing, of the further dominance of growth stocks and perhaps even higher multiples.
Kantrowitz doesn’t necessarily expect the stocks to be unable to retreat. But “The ‘price’ that would have to be paid in the face of a decline in the value of securities has never been greaterGiven the growing attention of ordinary people to market behavior, he said. A possible reversal on the political front or a suspension of aid could upset the markets and consequently stop the recovery of the economy US.
“It seems cheaper and much simpler at most [dei decisori politici] keep the orchestra playing and support the stock market, and by extension to the economy, ”he wrote.
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