The Fed’s action on the economy had spurred a frenzy sentiment for bonds and stocks, through his US treasuries and mortgage backed securities that is buying. Which already transformed his balance sheet from $4.2 trillions in February to $7 trillion July.
Making the current virus inversely correlated with the markets, because Fed will keep pumping stimulus to help market liquidity.
Even that the Federal Reserve has not bought stocks as part of their program, they are with their near-zero interest rates and credits support which is driving starving investors back to the equity market.
After the bottom on March 23, S&P 500 and DJIA have both rise more then 40%. Under we have the forward price-to-earnings is currently at 21.5, a level only matched with the dot-com boom on the 2000’s.
The current euphoria is also spreading to the IPO universe, with around $8.9 billion in the second quarter priced above the target range, which is the highest since 3rd quarter of 2014, according to Dealogic.
Is also important to take in consideration that the Fed is encouraging companies to issue debt, which made the market to generate around $1.2 trillion of investment grade paper on the first 6 months of the year. And the junk rated bond made an $200 billion just in June, more than double last year’s rate.
Are the Central Banks cooking a new crisis? Time will tell us…
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