The Point: The Year of the Record

The main trend that has intensified in 2020 is the high and increasing reliance of the financial markets on central bank-provided liquidity. This dependency has important implications for asset valuations, volatility levels, investor risk appetite, and even future economic dynamism. Understanding these relationships helps to make sense of the largely perceived divergence between strong financial markets and the real economy in recent months. But more importantly, it provides a framework for investors to adapt to change in these key drivers. Hints of change are brewing, be it de-globalization, Fed inflation targeting, or a spirited embrace of fiscal spending. If they materialize, any or all could have profound implications on financial markets and asset returns.

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