Easier Monetary Policies Won't Boost Markets Much Longer
There are four major reasons why lower rates are likely to only give a short-term boost to stocks and other high-risk assets.
Central banks are losing their potency.
Photographer: Drew Angerer/Getty Images North AmericaFollowing the rout in May, stock markets in the U.S. and globally have staged an impressive rebound this month. This is partly due to expectations that major central banks led by the Federal Reserve and European Central Bank will ease monetary policy, supporting risk assets.
For investors, the takeaway should be that cuts in interest rates and the resumption of asset purchases may only generate a short-term boost to valuations. Especially in the case of the Fed, investors would be smart to reduce risk rather than add to it if the message sent by the central bank and Chair Jerome Powell on Wednesday is dovish in tone. The next several months will be a traders’ market rather than one for long-term investors.