•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.