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FXStreet reports that the highly expansionary monetary policies conducted by the Federal Reserve (Fed) and the European Central Bank (ECB) are leading to abnormally strong rises in share prices. This mechanism may be unintentional (the real objective of the expansionary monetary policy is to stimulate demand and improve borrower solvency) or deliberate (to benefit from wealth effects, aid the financial sector). Economists at Natixis carry out an econometric and statistical analysis to find it out.

“The central banks’ objective is to stimulate investment by maintaining the solvency of borrowers, in particular governments. Monetary policy then has the side-effect of giving rise to an equity bubble. This effect is an unintended consequence.”

“The central banks’ objective is to drive up stock market indices to benefit from positive wealth effects on consumption and investment; and to bolster the financial sector (investment funds, institutional investors) by generating capital gains on their assets.”

“Our econometric analysis shows no significant negative effect of growth in the stock market index (year-on-year, quarter-on-quarter or month-on-month) on the central banks’ key interest rates.”

U.S. stock-index futures rose on Friday, as reports that U.S. President Donald Trump wants a deal on a comprehensive bill with House Speaker Nancy Pelosi raised investors' hopes that Democrats and Republicans can reach an agreement on a broader coronavirus legislative package before the November 3 Presidential elections.

Global Stocks:

NFXStreet notes that S&P 500 has confirmed its flagged “head & shoulders” base above the mid-September highs and 61.8% retracement of the fall from September at 3429/44 and analysts at Credit Suisse look for a resumption of the core uptrend. 

“The S&P 500 has as suspected easily reversed its bearish ‘reversal day’ from Tuesday and has pushed above key resistance from the mid-September highs and 61.8% retracement of the fall from September at 3429/44 (although on noticeably low volume). This suggests the flagged ‘head & shoulders’ base is now in place and with daily MACD momentum having already turned higher we look for a resumption of the core uptrend.” 

“We see resistance at 3495 initially ahead of the 78.6% retracement of the September fall at 3507.” 

“Support is seen at 3428 initially, with 3419 now ideally holding to keep the immediate risk higher. A break can see a pullback to 3395/85, but with better buyers expected here.”

(company / ticker / price / change ($/%) / volume)

Amgen (AMGN) downgraded to Mkt Perform from Outperform at Bernstein

Amgen (AMGN) downgraded to Hold from Buy at Truist; target $251

NVIDIA (NVDA) downgraded to Sell from Neutral at New Street; target $400

American Express (AXP) downgraded to Neutral from Positive at Susquehanna; target $110

International Paper (IP) upgraded to Overweight from Equal Weight at Wells Fargo; target raised to $52