On Wednesday, the US Dow Jones market closed at a historical high of 31,961 and the market sentiment looks set to achieve a 32,000 benchmark in near future. The bullish trend came after Federal Reserve chair Jerome Powell reassured the inflation is still soft and far from the current target. Powell further said that policymakers would do all they could to stimulate recovery despite the impact of pandemic crisis.
In line with the US$1.9 trillion relief package to be rolled out sometime in March, market investors are anticipating the fund to be used to support US family expenses, unemployment bills and social reliefs until July.
Treasury Secretary Janet Yellen also stressed that the stimulus must be bigger in order to ensure the recovery can be on path through year-end. Hence, many market analysts reckon there might be a second or third stimulus in the second semester of 2021.
When the money supply loosens and increases in market, the first sector to be directly influenced positively will be the stock market. While the market fund shifts from high-tech stocks to Dow Jones stocks now, it will be in no time that this fund will move back to Nasdaq Composite Index once investors begin to take profit in Dow Jones market sometime in mid-March.
When the US government aims to implement relief stimulus into the domestic market, we reckon the next step of Federal Reserve policymakers will be reducing rates and devalue the dollar. Hence, this year will be a good year to observe and place your investment commodity instruments. Broadly speaking, the prime sectors in commodity markets will cover the precious metals, energies and food commodity. This could be the profitable sectors that carry huge potential to rise in prices while Dollar weakens.
In summary, the cash liquidity that injected by FED policymakers is somehow catching up or level to the total capitalisation in Dow Jones Industrial Average Index. In this context, we are talking about the average benchmark of US Federal Reserve spending and the market worth of Dow Jones’ component market both on par at an estimate of US$10 Trillion each.
Therefore, it may be too early to predict a market clash or financial tsunami while the inflation is still far from target. In the past decades and every time before a market turmoil, we would see the inflation rising amid increasing money supply while unemployment and debt increased. Only when the situation progresses into a stagflation, that is when the danger sign arises for an imminent stock plunge. Follow this procedural observation when we move into 2022.
Dar Wong is a professional in financial industry since 1989. The expressions are solely his own. He can be reached at [email protected].