Issue 6 – Will Reflation Lead to Runaway Inflation?

A Snapshot of the Week Ended February 12, 2021:

The market remunerated the speculators who believed that the precipitous fall in stock prices caused by the raiding frenzy in misfit stocks was an unsustainable event and just too crazy to last. Michael Harnett called the idiosyncratic episode a “tempest in a teapot”. The S&P 500 regained previous week’s loss and registered a whopping weekly gain of 4.7%, as strong earnings underpinned the market. Meanwhile, the economic prints were either on side with expectations or much better than consensus. The Atlanta Fed’s GDPNow model has a new Q1 growth estimate of 6.0%, up from 5.2% on January 29. Interestingly, the plunge in the VIX, a reliable indicator of forthcoming volatility, from 33.2 to 20.87, is a clear sign of optimism. The enthusiasm of the market the S&P 500 ended the week with a 1.2% gain and an all-time high. The increase was mute in comparison to many other high-flying weeks. This should not come as a surprise for there is a bit of conservatism in the press. Several traders are taking profits. Yet, trading was calm, as volatility abated. The Vix, a reliable short-term indicator of future volatility, fell below the 20 point threshold. According to EPFR data that is compiled by the BofA’s weekly “Flow Show” equities received their largest inflow on record, taking in $58.2b last week.


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By Hubert Marleau

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By Hubert Marleau

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