The melt up in financial markets over the past decade has been astounding. In my mind the Dow Jones (DIA) went from around 8,000 to 18,000 during the Obama years. It went from 18,000 around the time President Trump was elected, peaked at over 26,000 and now hovers around 24,700. Each time there was a pullback the market miraculously spiked again. I chalk it up to central bankers’ so-called “wealth effect” and ubiquitous flow of liquidity into the market.
My question is, “What did all this accomplish?” I remember when Dow 10,000 was a milestone. Does anyone believe corporate earnings were strong enough to drive the Dow over 26,000? Now all eyes are on Fed Chairman Jerome Powell and the Federal Open Market Committee Meeting Wednesday. Economist Mohamed A. El-Erian believes the Fed will hike rates by 25 basis points and intimate more in the future:
At the meeting this week of the Federal Open Markets Committee, the first with Jerome Powell as chairman, the Federal Reserve is likely to raise interest rates by 25 basis points, renew its commitment to two more hikes of similar size in 2018, and reaffirm the plan to gradually reduce the size of its balance sheet. These actions will constitute another step forward in the “beautiful normalization” of monetary policy.
None of this should come as any great surprise to financial market participants. Nonetheless, the March 21 statement and news conference, along with the meeting’s minutes that will follow in a few weeks, should be of interest.
Given a Dow still hovering near 25,000 who is say a rate hike is priced in. Wednesday should be interesting.