Two the Point — Insights into Resilience, Volatility, and Liquidity

This week we examine the resilience of the U.S. economy and explore the implications of subdued market volatility and recent liquidity injections from policymakers.

Key Insights:

• Lower interest-rate sensitivity, highlighted by the fact that 40% of homeowners don’t have mortgages and most mortgages are 30-year fixed, reduces the impact of Fed rate hikes.
• Strong demand tailwinds, driven by fiscal spending initiatives like the CHIPS Act and Infrastructure Act, alongside rising excess savings and robust immigration, bolster economic growth.
• Market volatility has remained notably calm, with over a year passing since a decline of over -2% in the S&P 500, potentially indicating a forthcoming period of increased market activity.
• Historical data suggests that low volatility phases often precede periods of strong market performance, providing insight into potential future market trends.
• Recent liquidity injections by policymakers, including the winding down of the quantitative tightening program and the Department of Treasury’s decision to finance the deficit through T-bills, aim to support financial markets and economic stability.
• Understanding these dynamics provides valuable insights for investors navigating the current economic landscape.