Is There Anything That Can Take Down This Bull Market?
Kevin Brunner
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Brexit couldn’t do it. Changes in the U.S. administration and a couple of impeachments barely put a dent in it. If a world-wide pandemic hasn’t put an end to the 12+year old bull market, just what exactly can? Why does the stock market appear to be on an unstoppable, ever-upward rise?
The answer may be relatively simple: money. There has been a meteoric rise in the U.S. M1 money supply which measures the nation’s cash and cash deposits. Consider this: in 1951, the M1 money supply was $1.5 trillion. In 2020 it was $4 trillion. Since the start of the worldwide pandemic in 2020, the nation’s money supply has ballooned to more than $14 trillion, in large part due to the U.S. Government’s COVID-19 Economic Stimulus and Relief Measures. That monstrously large influx of cash not only helped float many businesses affected by the pandemic, but even allowed some to report earnings growth.
This intervention by the U.S. Government has helped deflect the effects of negative unemployment and disappointing GDP numbers from this historic bull run. The Fed has also done its part to hold the market up with cheap money by keeping short-term interest rates at zero. That allows banks to loan it out at low rates which fuels economic growth and a strong market.
But an economy propped up by cash from the government can’t keep rising forever. Here are a couple of scenarios that could signal a red flag to this historic bull market.
The Fed Steps In To Curb Inflation?
If the inflation rate reaches 5 percent or above, the Fed could slow down purchases of mortgage-backed securities and treasuries. That could cause interest rates to rise and the value of bonds to decrease.
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Congress Votes for a Debt Ceiling
If Congress doesn’t vote to raise the debt ceiling, the U.S. will start to run out of money, potentially leading to defaults on what it owes and a downgrade of the country’s bond rating.?
The U.S. Government can only do so much to manipulate the economy and help sustain a market that has appeared to be invincible. It’s not so much a question of whether the bull market will come to an end, it’s more a matter of when.?
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