As can be seen in this case, although not the only contributory factor, a loosening of monetary policy is often accompanied by a strong period of growth in asset prices. This is a story that can be seen across many markets since the global financial crisis, not just the US.
In the current climate, asset prices are particularly volatile as uncertainty in financial markets is rampant. Newspaper headlines would have you believe that global markets have reacted positively to targeted fiscal and monetary interventions so far with the FTSE 100 and S&P 500 both rising by more than 9% on the day it became clear that the US stimulus package would be passed. This was one of the best days for both indices in their histories and was followed by another day of strong performance. However, markets subsequently fell back soon after and remain volatile, demonstrating that there is no easy fix and this will not be a straightforward recovery; particularly until a greater understanding of the spread of the virus can bring more certainty.
While there is a long way to go for markets to recover to where they were at the start of the year and economies will undoubtedly continue to struggle for some time; it is clear that central banks and governments are willing to act to take even greater measures, where necessary. In doing so, investors could find themselves with a familiar economic backdrop over the coming years.
A long-term disciplined investment approach
One could get bogged down in the questions of whether the lessons have been learnt from 2008, whether another decade of cheap money at the heart of the global economy is sustainable and what the consequences may be once monetary policy is reversed. However, as we addressed in our last Insight; for investors, trying to predict or time any market changes rarely adds any value in the long term. Knee-jerk reactions can have detrimental consequences and one would do well not to get caught up in the short-term noise. As always, a structured, disciplined and well-diversified approach to investment can produce favourable long-term results, whatever market conditions are experienced along the way.
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