TOO MUCH FOCUS ON TAPERING? In my opinion there is currently too much focus on when the Federal Reserve will taper its asset purchase program. Whether there is an earlier than expected tapering or a delayed tapering, the fact remains that the fed funds rate is likely to remain at the historical low of zero to 25 basis points for a while. While I believe there will be a tapering at some point, most likely it will take place later rather than sooner.


Chart 2: U.S. Federal Funds Rate


EVEN WHEN THE FEDERAL RESERVE DOES TAPER ITS ASSET-PURCHASE PLAN, MY VIEW REMAINS THAT AN EARLIER OR LATER TAPERING, WOULD ONLY REPRESENT A PARTIAL WITHDRAWAL OF ACCOMMODATION.


GLOBAL INTEREST RATES REMAIN Source: ©RateSource: Tradingeconomics.com, Federal Reserve BULLISH INTEREST RATE INFLUENCE TENDS TO


DOMINATE ALL OTHERS There is one fundamental that has dominated all the way up from when this historic bull market first began in March of 2009, and it remains with us today. This fundamental ultimately dominated over a multitude of temporary bearish influences that have sprung up in the past decade, including political turmoil, banking crises, crude oil price shocks and severe weather related economic downturns. That dominant fundamental that eclipses all others in the long run is the interest rate influence. As interest rates in the U.S. and globally remain near historic lows, stock index futures have been underpinned by cash inflows that in the past, distant past might be more appropriate to say, would have moved into credit markets.


A MAJOR TAILWIND There is still plenty of accommodation in the international banking systems, as well, despite some central banks actually announcing a tapering schedule in addition to talk of withdrawing other forms of accommodation. In spite of some central banks tilting toward a less accommodative tone, there is still plenty of stimulus remaining. Keep in mind that some countries in Europe and in Japan continue to have negative interest rates. Money tends to flow to where it is treated the best, and currently that asset-class is equities.


Even when the Federal Reserve does taper its asset- purchase plan, my view remains that an earlier or later tapering, would only represent a partial withdrawal of accommodation. A Federal Reserve tapering will not derail the bull market in stock index futures. The global reflation scenario will still largely be on track and will remain the ongoing dominant fundamental that supports futures in the long-term. Higher prices are likely for U.S. stock index futures.


Alan Bush


E: alan.bush@admis.com T: 001 312 242 7911


17 | ADMISI - The Ghost In The Machine | Q2 Edition 2021


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