Given the famous “long and variable” lags from policy to inflation outcomes, a substantial part of recent policy tightening has yet to have its full effect. The collapse in global credit creation implies the net flow of new credit is now much lower than the pre-pandemic period—suggestive of anaemic money growth ahead once the portfolio reshuffle comes to an end. The monetary overhang from the pandemic required a one-off adjustment of the price level. Since central banks target future inflation and not the price level, this ought to have been largely looked-through when setting policy in a forward-looking way. Instead, policy has been found reacting to incoming inflation and therefore over-tightening. Now that our more recent monetary overhang has now nearly worked it way through global prices, risks for monetary policymakers are now shifting from over- to under-shooting targets.
- Date Posted:
- January 2, 2024
The total market value of all 500 stocks in the S&P 500 has increased by $8 trillion or 24.2% during 2023. Without the seven Mag7 stocks [Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla,] the value of the index would have risen by “only” USD 3 trillion, which corresponds to a return of 11.7%. In other words, the Mag7s are responsible for 52% of the increase in the total market value of all 500 stocks in the S&P 500. At the end of August, Mag7 had accounted for more than 70% of the value created by all the companies in the S&P 500. Today, that share has fallen to 52%. So it’s still a concentrated rally, but not as concentrated as it was right after the summer.