The case for Higher Asset Prices

Macro Perspectives: Tue 13 Jul 2021

Predictably, as we kick off earnings season this week, stocks are new record highs, again.

Following on from the theme we’ve been building on; these earnings numbers will be big, the positive surprises will be big, and the inflation data we'll see tomorrow, from the month of June, will likely be hot.

This, and the data that will follow over the coming weeks (from the second quarter), should all make clear that the Fed's QE bazooka should be ended, immediately. The data should also make clear that there is no need for continued fiscal support: no more unemployment subsidies, no more direct payments, no more "stimulus" (which will next come packaged as a multi-trillion dollar spend on "infrastructure").

However, to be sure, the Fed will continue doing what it’s doing and the U.S. administration (with the help of an aligned Congress) will continue along it's path of fiscal profligacy.

Why? The virus. The variant will give them plenty of justification to stay put on red alert/emergency policies. And the media will certainly stoke the uncertainty. We should see plenty of these headlines coming, like Bloomberg ran yesterday: " US Cases Soar."

Let's take a look at how that translates, with some perspective on the history of the past 16 months. 

The CDC says the Delta variant was found in the United States in March.  As you can see, the case trajectory from there is lower. Whilst also, as you can see below, the trajectory of deaths, related to covid, has continued to decline.

Still, with all the above in mind, hot earnings and economic data, combined with the impetus to see fiscal and monetary policy to continue at full-throttle, we should have the recipe for even higher asset prices.