What’s behind the value trap? May 22, 2020

What’s behind the value trap? May 22, 2020

•Many market observers agree in noting the importance of excess liquidity created by the Fed as  a key factor behind the recent stock market rebound.

• Extraordinary as it is, it fits into the longer-term pattern which has seen real long-term rates ever lower.

•Ever lower rates have fed directly into the protracted outperformance of growth stocks and the concomitant underperformance of value stocks.

•Higher real rates from a significant near-term drop in inflation – which is not matched by lower policy-rates – might interrupt this pattern momentarily.

• But a longer-term change would likely require a re-orientation of monetary policy which does not seem to be in the cards.