7.9 Trillion Reasons Not to Fight the Fed, ECB, BOJ or BOE

If record high stock prices and record low yields on corporate bonds in the middle of a global pandemic seem incongruous, look no further than the massive wave of money delivered by central banks for why that’s happening. Collectively, the four leading central banks — setting monetary policy in the U.S., U.K., Europe and Japan — have expanded their balance sheets by almost $8 trillion this year. And it’s still growing. If that liquidity were a country, it’d be the third biggest on the planet based on GDP, ranking behind China.

Investor concerns that the gusher of central bank liquidity will run dry in 2021 are ill-founded in our opinion. Just this morning, the European Central Bank (ECB) unveiled a new round of stimulus. Their special pandemic-bond buying program will now run until at least the end of March 2022. That will add 500 billion euros ($605 billion) to their existing program. And that’s on top of their regular monthly asset purchases of 20 billion euros ($24 billion) that will continue “until shortly before interest rates rise.” And when will interest rates go up? Not for at least three years. The ECB’s newest forecast says inflation won’t be near their target by the end of 2023. Not to be outdone, balance sheet expansion continues at the Federal Reserve, Bank of England, and Bank of Japan as well.

Plenty of risks to the outlook for markets remain, including vaccine logistics, stimulus negotiations, the balance of power in Washington, D.C. and investor positioning (see Monday’s Market Notes). But it is important for goals-based advisors and their clients to remember that the gigantic liquidity backdrop is incredibly supportive for asset prices, and that isn’t changing anytime soon.

P.S.: Other ways to illustrate nearly $8 trillion:

  1. In terms of market cap, it is roughly equal to the combined value of the major equity indices of Germany, Japan, and the United Kingdom.
  2. In terms of S&P 500 sectors, it is 10x larger than the entire energy sector in the U.S., or about 44x larger than Exxon Mobil.
  3. It is equal to just under four Apples, or the combined size of the top five biggest names in the S&P 500 with a cool $700 billion to spare.

This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, please reach out to Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.

 


To download a copy of this commentary, click the button below.

Download The Big Number

To discuss how we can empower you please contact us at 866.371.2399 ext. 202 or info@horizoninvestments.com.

 
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
The Real Spend® retirement income strategy is NOT A GUARANTEE against market loss and there is no guarantee that the Real Spend® strategy chosen by an investor will lead to successful investment outcomes for part of, or for the entirety of an investor’s retirement. This strategy is not an insurance product with payments guaranteed. It is a strategy that invests in marketable securities, any of which will fluctuate in value. Before investing, consider the investment objectives, risks, charges, and expenses of the strategy. Keep in mind investing involves risk. The value of an investment will fluctuate over time and will gain or lose money.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2020 Horizon Investments LLC
 
Share on twitter
Share on linkedin
Share on facebook
Share on email
Horizon Investments

Connect product to planning with the Horizon technology suite. Goals-based strategies, cutting edge software.

Explore mutual funds managed by Horizon Investments.

You are now leaving this website to go to HorizonMutualFunds.com