Now that the Q1 GDP number has come lower than expected, are we going to witness another round of quantitative easing after the present “Operation Twist” ends in June?
Mark Luschini, Chief Investment Strategist at Janney Montgomery Scott doesn’t think so, especially in an election year.
The yield on 10-year Treasuries is still low below 2 percent. As investors continue to seek refuge in safe-haven assets, other asset classes like equities remain on the sidelines. Mark thinks a shock treatment is required to force people out of bond markets or bond mutual funds. However, people who believed in bonds were vindicated by the Fed’s QEs that resulted in a directional tailwind in the third-year of easing.
On the other hand, the Fed may keep its checkbook handy to ensure that interest rates or yields on long-term bonds don’t move north that may scuttle the economy’s momentum, though it may not start a quantitative easing program per se after June. That being said, if there is deflation or decay in the job market, the Fed may intervene with monetary stimulus measures.
The equity markets have moved too fast this year, the NASDAQ being up 17 percent year to date. This fast growth has not been supported by economic expansion though earnings growth has been impressive, but only if you consider the lowered expectations. Hence, it’s possible that earnings growth will slow down in the next quarter, unless economic activity really gathers momentum. You can watch the video here.
I believe that, in the event the markets pull back, say 20% or so, the Fed in my opinion is sure to offer a freshly juiced punch bowl as it has in the past 2 years.
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