The Market Cares About One Man: Jerome Powell

There is one person in this country who will not be phased by the outcome of this election, Jerome Powell. No matter who takes the Oval Office, no matter the headlines this week, Jerome will continue with his business.

The Fed acted swiftly and effectively in March when the United States was hit with a pandemic that forced Americans to stay home and businesses to shut down. In order to avoid a financial crisis, Jerome Powell and his peers executed not one, but two emergency rate cuts which sent interest rates to nearly zero, erected a massive bond-buying program, and enacted the Main Street Lending Program. The U.S. economy has never seen such firepower in its history; not to mention the newly implemented Monetary Policy that is encouraging inflation.

Jerome Powell knows that he can not single handedly save the economy without exhausting his tools; and for that he calls on Congress for further fiscal stimulus. He does not involve politics, size of stimulus, or even a date; he only asks that they provide. The call for stimulus from Congress by the Fed can be argued as a sign of weakness on the Fed side; are they running out of tools? The Federal Reserve is an independent entity so when they call for help, something may be wrong. Or it can also be argued that in a period of uncertainty due to a pandemic, fiscal stimulus would be more effective than whatever Jerome Powell has to offer. Lower interest rates, asset purchases and lending programs are not as effective as direct payment to citizens in these times of high unemployment and health crisis.

Presidential nominees enjoy blaming each other for the next market crash; Trump says Biden’s capital gains tax policy will send investors running and Biden says Trump will cause civil unrest and deeper lockdowns. The virus has hit in waves since March and the market seems to have been ignoring case numbers ever since Mnuchin announced the implementation of quantitative easing and Jerome Powell rolled out the printing press.

This volatility leading into the election is nothing out of the ordinary; historical data shows that three months leading up to the election, the market begins to price-in the next President. There is also the variable that has never been part of the algorithm coming into an election, the virus. Coming to the last week before the election, the headlines became very bearish. European countries announced that they were going back into stay-at-home orders since the case numbers can no longer be ignored. Since the beginning of September, the S&P 500 is trading 10% lower than its all-time-highs. Not to mention big tech stocks have begun deflating even after reporting amazing quarterly earnings.

If we indeed re-enter a bear market as we did in March, all eyes will be on the President when they should actually be on Jerome Powell. In the end, it is his policies that will decide the faith of the market.