Investors will move to further top-up their investment portfolios following the US Federal Reserve’s first meeting since last year and since the Covid-19 crisis gripped the global economy.
The Fed meet last Wednesday and said they would hold rates the same at near-zero for some time to help boost an economic revival.
It was expected that rates would stay the same and the US central bank’s decision was unanimous on this.
The focus was on Chairman Jerome Powell’s statement that followed after.
In a press conference he said that the pandemic "weighs heavily” on the American economy – the largest in the world – and that the Fed would do “whatever we can, and for as long as it takes” to support the recovery and “limit lasting damage” to the economy.
Against this backdrop, further stimulus can be expected from the Fed - and also perhaps from Congress too - in the near future as the economic revival will be a longer process than many had hoped.”
This ‘backstop’ from the Fed slashes the threat of a second market slump even if economic data comes in worse than next quarter.
It provides something of a ‘floor’ for equities.
As a result of this, investors will be seeking to further top-up their investment portfolios to get ahead at lower entry points, before the hike in values that would kick-in with another round of stimulus.
To many, the stock markets have seemed out of step with the bleak economic data recently.
But it could also be the case that they are giving us clear signals for the current and future shape of the economy, in which there are and will be distinct winners and losers, unlike in other recessions.
A good fund manager will help investors seek out the opportunities and mitigate potential risks as and when they are presented to generate and build their wealth.”
The Fed believes the economic outlook for the rest of this year will be tough. But it will continue to purchase government-backed debt at least at the current pace and the markets believe this will be further increased in order to maintain smooth market function.
This will support and likely boost asset prices moving forward. Investors will now be eyeing the opportunities before any fresh or enhanced stimulus packages are announced.
Nigel Green is the CEO of deVere