The worries of April were the source of investor happiness during the month of May as thanks to factors that served to stop the rise in U.S. government yields, the S&P 500 recaptured the majority of its April decline. First, the Federal Reserve tapered QT by more than expected, effectively boosting forward 12-month liquidity by US$420B. On this point, we continue to contest Powell’s notion that monetary policy is tight; phooey it is! Sure, rates have gone up but a) the U.S. economy is far less sensitive to interest rates than it was in the past, and b) the ten-year graph below confirms the U.S. continues to swim in a sea of liquidity (70% above pre-COVID levels). We believe this latter fact has played a significant role in boosting the price of assets and U.S. economic growth. Second, the U.S. Treasury’s ‘Quarterly Refinancing Announcement’ (QRA) was in-line with expectations including nominal auction sizes expected to be stable for “at least” several quarters. Finally, U.S. April economic data released in May was softer on growth and inflation, a combination seen as being good for forward rate cuts yet within the context of an economy still growing enough to generate the profits requisite of a S&P 493 (ex-M7) trading at more than 19X forward EPS.
Alternative asset manager offering investment solutions that find a balance between asset protection and capital enhancement.
Alternative asset manager offering investment solutions that find a balance between asset protection and capital enhancement.