Long-term rates are not the primary problem, while the Federal Reserve is expanding the money supply too quickly. For equities, that distinction matters. Higher rates are usually a valuation headwind, but abundant liquidity can support risk appetite, credit availability and asset prices. Banks will want to lend at higher rates to those that need it the most. Conversely, easy money does not guarantee rising stocks if inflation pushes real yields higher or earnings deteriorate. 2. Core transmission channels: The textbooks tend to teach us that: 3. Key nuances and regime dependence: Each time is different… remember we can’t predict other participants future actions with great accuracy. Three distinctions matter: What make this case too unique for a simple model: The critical question is whether money and credit conditions are supporting risk-taking or whether rising real yields are tightening the effective cost of capital. 4. Practical implication for positioning:
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Is the dollar becoming more dependent on stocks? After reading papers, news, and a few conversations, I’ve come to share that market participants increasingly see the U.S. dollar as driven by stock-market performance rather than traditional bond yields. It took me some time to put this into words. This is not a shift I expected
“This is the kind of risk management the market should expect right now. It’s pretty basic stuff,” said a person close to one of the banks. Link to the article… https://x.com/mariorandholm/status/2082358902788599811?s=46 The person said many of the demands were automatically triggered by market volatility. Banks build in protections when lending to hedge funds to ensure
August is approaching, and then September… Soon we will finish July, which is usually a strong to very strong month for U.S. stocks. The SPY chart on TradingView confirms this. However, this year, some market participants are watching/thinking and looking for solutions to determine when and how the NASDAQ might crack. In the chart above,