In every thriving economy, access to credit is the a key metric. If banks do not give credit, although it can make wonderful common sense on some personal accounts, the actions cascade throughout the economy and people spend less which means the economy is heading downwards. If more credit is given, people tend to want to spend money which helps the economy. Central banks are always trying to balance what is good for the economy and what is good for individuals.
In an article by Matt Scuffham of Reuters, ever since COVID shut down sectors in the economy for health reasons, the central bank has levered up liquidity and trading activity to ensure Wall Street is running well. The banks with large trading desks such as Goldman Sachs, JPMorgan Chase and Morgan Stanley have been the biggest of market volatility. Trading revenues have increased, but the Fed is changing which means revenues will fall.
There is good news for the trading desks with the Fed decreasing its injection, interest rates are expected to increase which helps the bond markets. On the trading floor, as long as there is volatility in one area of the economy, the trading desk can make money which translates into large bonuses. Analysts are expecting the overall environment to remain positive for trading activity, albeit below the levels of the past 2 years.
Linking to dividend paying stocks, for investors you want a relatively non volatile market where the companies you invest in continue to sell their goods and services to make money and able to increase prices to maintain margins. It is an easy ask, but over 90% of the market does not do it. Quality is a good thing for investors.
There are more questions than answers, till the next time – to raising questions.