U.S. Federal Reserve Rains On The Parade

Not that it was a big surprise to most rational investors, but the perfectly priced stock market (see Tuesday's Blog "It's OK To Look Now") got a dose of reality yesterday when the Fed's Open Market Committee (FOMC) released its latest economic projections for the next couple of years and lo and behold, they do not see the US economy returning to 2019 levels until well into 2022. Historically, the Fed has been pretty optimistic about growth. Not so yesterday, so likely no (#2) "V" shaped recovery:

"The ongoing public health crisis will weigh on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."

Median economic projections are for a -6.5% GDP growth rate for 2020. +5.0% in 2021. +3.5% in 2022.

Unemployment: 9.3% in 2020, 6.5% in 2021, 5.5% in 2022. Recall that at the end of 2019, this number stood at 3.5%.

That may not bode well for consumer and business confidence, which is the key to spending and investing and in turn corporate profitability (and stock prices, perhaps?).

#3, A Vaccine will be ready in the fall: According to The New York Times :

Covid-19 cases are ticking up in some re-opened states, although that could also be a function of more testing. 

Shedding a little doubt on #4, Trump wins in November (again from Tuesday's blog), the Economist says (at the moment) that they see Biden winning. And Real Clear Politics (showing many and various polls) has Biden ahead by anywhere from 7% to 14%.

So my friends, stock markets are looking a little more volatile this morning as reality appears to be setting in. All the big gains from last Friday have been reversed, which technically could ignite further selling as traders will look to lock in their profits from the big run-up from the March lows and momentum driven, computer generated traders jump into the fray. 

Just prepare yourselves for the greater potential for more stock market volatility, emotionally, if you choose to stay the course (i.e. stick with your current portfolio balance).

Standing by...