“The much more significant change is the sharp tightening in financial conditions. For a variety of reasons —including an initial bout of concern about [Fed Chairman Jerome] Powell’s ‘long way from neutral’ remark, the inevitable slowing of GDP and profit growth from their exceptionally strong pace, and the broadening tension between the US and China — rising investor anxiety has pushed up our [financial conditions index]by about 80bp since early October. If the FCI remains constant at its current level, we estimate that tighter financial conditions would take ¾-1pp off real GDP growth over the next year,” Goldman Sachs economists wrote.
All in all, it speaks more widely to the uncertainty of the general investment population as stocks continue to go on a seemingly-perpetual loop of volatility. The Fed will most certainly play a major role in deciding whether markets can continue their upward trajectory seen prior to October’s mass sell-offs or if volatility reigning ultimately becomes the new normal.
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