Why stock-market investors might need to worry more about fiscal policy than the Fed
The narrative around the stock-market selloff that accelerated Friday centers on the notion that the specter of wage-driven inflation will prompt the Federal Reserve to raise rates more quickly than expected, risking a dreaded “monetary policy mistake” that sends the economy into recession and kills the bull market.
But this time around, the bigger risk may actually lie on the fiscal policy front, said Nicholas Colas, co-founder of DataTrek Research, in a Monday note. There is a risk, he writes, that the tax-cut bill signed into law in December proves “dangerously inflationary” and contributes to a Treasury market selloff.
The yield on the 10-year Treasury note TMUBMUSD10Y, -3.12% extended its rise Monday to a more than two-year high above 2.88% before trimming its rise. Yields rise as debt prices fall. The Treasury selloff accelerated Friday after January jobs data showed a pickup in wage growth that stoked inflation worries, triggering the biggest one-day percentage decline for the S&P 500 SPX, -3.43% since September 2016 and the biggest drop for the Dow DJIA, -3.93% since June 2016.
U.S. stocks extended the selloff Monday, putting the S&P 500 and Dow on track for their first 5% pullback from an all-time high in more than a year.
https://www.marketwatch.com/story/why-stock-market-investors-might-need-to-worry-more-about-fiscal-policy-than-the-fed-2018-02-05?mod=MW_story_top_stories
