Interest rate scare
If there is one thing that can put a dent to the bull market it is the specter of rising rates in these ultra-loose financial conditions. While the Dow Jones and S&P 500 have hit new highs in recent weeks, the idea that the Fed could increase rates sooner than expected has investors on edge.
Although the Fed has made it clear that it does not plan on hiking rates anytime soon, an accelerating US economy coupled by rising inflation will force Fed chair Jay Powell to take notice. Interest rates have steadily been on the rise since the beginning of the year and inflation figures are growing at a fast pace. A tapering of bond purchases should not be out of the question this year and would cause some tremor in the equity market.
Company earnings have been very good and are expected to be even better in the coming quarters which bodes well for stocks. However, the economy risks overheating and could need cooling down. The Fed’s communication during its upcoming meetings will be followed closely for clues on its next potential moves.