woensdag 5 april 2017

Market Outlook

Stock market investors have had a good return since Trump won the election in November 2016. In this article I'll give a quick view on what to expect going forward.

Following the debt ceiling holiday expiration in March 2017, cash in the U.S. treasury plunged to almost zero (blue chart below from FRED). The red chart shows how the Federal Reserve balance sheet was basically flat since 2015 when QE3 ended. The little blip in 2017 managed to push the stock market to all time highs by adding bank reserve liquidity.

This boost in bank reserves is also visible in the increase in the monetary base in 2017.

So while we haven't heard anything on QE4, we actually had an increase in monetary base due to the depletion of cash at the U.S. treasury to prop up the stock market one last time before the debt ceiling holiday expired in March 2017. Now that this cash is fully used, there is nothing that will stop the stock market from declining.

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