What to Watch on the Stock Market Ahead of Jackson Hole
The S&P 500 joined the stock market indices party and made a new all-time high two consecutive days in a row. Effectively, it erased all the losses caused by the COVID-19 crisis, and investors that bought the dip congratulate themselves.
A weak USD coupled with summer trading activity is responsible for such performance. Also, a new generation of traders, one that does not have much capital but compensates for its size, just met the stock market.
When “stocks only go up,” like one of their gurus say, it is easy to decide which way to trade. But the stock market is a general term. Who exactly owns stocks, and is the stock market a wealth distributor or not?
Near Most Negative USD and Stocks Correlation
One of the things no one could have missed this spring and summer is the correlation between the USD and the stock market. It reached almost record levels, as the USD trades in an inverse correlation with stock indices.
Whenever this happens, it means that this is a liquidity-driven market. In other words, any drop in liquidity may trigger a rally in the USD – and a stock market correction.
Unsurprisingly, the stretched correlation happens at a time when the Fed and the markets prepare for Jackson Hole. The market has built expectations regarding a possible announcement of average inflation targeting from the Fed or maybe even a combination of it with yield curve control measures, using the Bank of Japan’s model.
However, what moved the needle for the USD and the market was liquidity. More precisely, the M2 sharp rise due to the fiscal and monetary measures delivered in the economic crisis.
Coming back to the question of who is owning the stock market, 1% of the richest own half of it. Moreover, the richest 10% own 92% of it. The rest, you guessed, are the retail traders and the average Joes.
In other words, this is not the stock market, that represents 90% of the American people. However, it is the purest form of capitalism one can see, the one true vehicle enabling people to dream about new riches.
That is especially true in a time when jobs are scarce, the market’s volatility is high, and companies like Tesla deliver over 300% return in less than half a year. Where else to find such opportunities than on the stock market?