Will 2021 Continue to Boom?
Updated: Aug 17
The question on the minds of most investors is "when will this market end?" The US markets went through a rather mild recession this year and have bounced back with extraordinary force, as the S&P 500 has grown nearly 14% YTD. So investors would like to know whether this boom market for stocks, housing, and commodities will continue through the year 2021.
The answer lies within the Federal Reserve's policy plans. The reason the stock market, housing market, and commodities markets are doing so well is because of the Federal Reserve's repurchase plans in which they use $80 billion each week to repurchase treasury bonds, mortgage-backed securities, and even a slew of corporate bonds and bond ETFs. This has been a large, if not the largest, contributor to the two drastically different economies we see while looking at the US during 2020: from one view the stock markets are at all-time highs, meanwhile unemployment hovers above 8% and economists predict about 20% of unskilled labor jobs have vanished entirely and will never return.
The Federal Reserve's policy plans have been extended through 2021 and they do not plan to relinquish their $80 billion per week spending or raise interest rates above 0% until 2022 at the earliest. So very simply, if nothing else changes within the economy then the boom will continue until the Fed changes their policy.
They may have saved the stock markets from entering a recession and prevented volatile price swings, but they have decimated the "free markets" with their never ending stimulus. And they have drastically increased the prospective damage of the future fallout when the US markets eventually find their equilibrium once the stimulus stops.
The long term damage will likely be greater than anything we have seen in our lifetimes. There is the possibility of a geo-political shift in monetary power between the US and China in which China becomes the World's Reserve Currency. This would relinquish most of the monetary power within the US, and leave us with very few options should we fall into an economic downturn the size of the Great Depression.