Market Watch Weekly | July 24th, 2020 | I Love Gooooold!

Erik Dekker - Jul 24, 2020
North American markets were largely flat on the week with the tech heavy NASDAQ posting its first back-to-back weekly loss in several months.

North American markets were largely flat on the week with the tech heavy NASDAQ posting its first back-to-back weekly loss in several months. Big Tech has been the market leader this year with the top five stocks now accounting for 22% of the S&P 500 Index. Now, before everyone starts comparing to current investment climate to that of the 2000 tech bubble, today’s situation is very different.

Historically, bubbles have been burst by tightening fed policy. The Fed began raising short-term interest rates in November 1998 following the bail out of Long-Term Capital Management. Heading into the mid-2000 peak in the market, the Fed had raised rates six times from 4.75% to 6.5% and the Real Fed Funds Rate was elevated well above mean. Despite the incredible productivity growth at the time, then Fed Chair Greenspan was very concerned the tight labor market and historic rise in asset prices would lead to heightened inflationary pressures. Clearly, that is not the case today as current Fed Chair Powell has stated the Fed is fearful of deflationary risk, and stated explicitly the Fed is “not even thinking about thinking about raising rates.” That doesn’t sound like someone about to withdraw liquidity.

Click here for the full report.