Investors are now moving to buy stocks to bolster their portfolios ahead of yet more stimulus from the U.S. Congress and Federal Reserve which will further drive-up prices, affirms the CEO of one of the world’s largest independent financial advisory and fintech organisations.
The comments from Nigel Green, chief executive and founder of deVere Group, come as the White House is pushing for stimulus checks, which perhaps could come as early as next month.
In addition, it is widely expected the Fed will extend its unprecedented array of stimulus measures.
Mr Green notes: “Financial markets that were rattled by a coronavirus-triggered panic three months ago have since the end of March been on an impressively strong upward trajectory.
“This has been driven largely by the historic levels of stimulus.”
He continues: “It is likely the world’s largest economy, the U.S, will receive another round of stimulus shots in the near-future.
“As before, this will serve to further boost asset prices.
“Knowing this, savvy investors are, perhaps unsurprisingly, moving now to buy high quality stocks to bolster their portfolios ahead of the next announcements.”
After the Fed’s last expansion to its already record-beating stimulus programme on June 16, the deVere CEO said: “This extra stimulus acts as a ‘backstop’ or ‘floor’ for equities.
“The additional Fed support was widely expected by the markets and therefore, investors who have been paying attention have been topping-up their investment portfolios recently as entry points will inevitably continue to go higher as we move forward.”
Mr Green goes on to say: “The campaign by the Fed to support markets has worked incredibly well. So much so, that there will be influential voices calling for them to put a break on further stimulus after the likely, and highly anticipated, next round.
“This factor too can be expected to drive investors to seek the opportunities. Few things can fuel markets like another stimulus injection, so if this potential next round is one of the last for a while, investors will not want to miss the boat.”
He concludes: “Clearly, not all shares are created equal and a good fund manager will help investors seek those most likely to generate and build their wealth over the long-term.”
Planning ahead: the importance of Financial Stability during crisis
The sharp tightening in financial condition along with expectation of low inflation means that monetary policy play a significant role at the current juncture. Central banks can act quickly to help ease the tightening of financial conditions by combination of debt and cutting interest rates, thus preventing a possible credit crunch. Synchronized actions across countries increase the power of monetary policy. Therefore, global cooperation to synchronize monetary policy must be high on the plan. Ample liquidity within countries, and across borders, is the prerequisite to the successful reversal of the rapid tightening in financial conditions. In these unusual circumstances, if liquidity pressures threaten market functioning, central banks may need to step in and provide emergency liquidity.
If economic and financial conditions were to deteriorate further, policymakers could return to the broader collection that was developed during the financial crisis. For example, the Federal Reserve launched the Term Asset-Backed Securities Loan Facility in 2009, which provided targeted funding. The Bank of England and U.K. Treasury introduced the Funding for Lending Scheme, where a funding aid was provided to motivate the expansion of lending to households, small and mid-sized enterprises and non-financial corporates.